UK house price slowdown ‘on way’; factory growth hits 16-month low – as it happened

Time to recap

The UK housing market may be heading for a slowdown, as the cost of living squeeze and rising interest rates hit borrowers.

Annual house price inflation slowed last month to 11.2%, the latest report from Nationwide shows, and the market may weaken in the coming months.

Rising prices, and turbulence caused by Brexit, has hit business confidence. The IoD reports that directors are the most pessimistic since October 2020.

Global factory growth is slowing, as the Ukraine war hits demand and pushed up costs.

UK manufacturing activity grew at the slowest pace in 16 months, while eurozone factories have suffered their first drop in new orders in almost two years. US factories also reported a slowdown.

British families are facing the highest rise in UK shop prices in more than a decade, driven by more expensive fresh food.

The Bank of Canada hikes interest rates, and warned that further rises will be implemented if necessary to tackle inflation, which it warned was rising globally.

Britain’s travel chaos intensified.

British Airways and easyJet cancelled more than 150 flights to and from the UK on Wednesday, as holidaymakers faced further delays going into the extended Queen’s platinum jubilee bank holiday.

Ministers and the aviation industry have clashed over who is to blame for the disruption, with transport secretary, Grant Shapps saying travel firms had “seriously oversold flights and holidays relative to their capacity to deliver”.

Ministers have been told to give the road haulage industry a two-year deadline to upgrade facilities for lorry drivers, with clean showers, healthy food and spaces for female drivers, or else face a new tax.

Mike Ashley’s Frasers Group has swept in to buy the online fashion retailer Missguided out of administration for £20m in cash.

The world’s largest traditional carmakers could improve their profit margins and boost their value to investors by accelerating the transition to electric cars in the next decade, a new analysis has found.

... and Cuthbert the Caterpillar is returning to Aldi’s shelves, after a legal battle over his similarity to M&S’s Colin.

The number of job vacancies in the US remains near a record high.

Job openings decreased to 11.4 million on the last business day of April, the U.S. Bureau of Labor Statistics reports, down from an upwardly-revised 11.8m at the end of March.

The number of workers voluntarily quitting their jobs was near last month’s record, at 4.4m, suggesting the market remained tight.

Layoffs and discharges hit an alltime low of 1.2m as firms held onto workers amid labor shortages.

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Canada’s central bank has raised interest rates by 50 basis points, and warned it may act “more forcefully if needed” to get inflation under control.

Announcing its second consecutive 50-basis-point hike in a row, the Bank of Canada warned that inflation globally and in Canada continues to rise, largely driven by higher prices for energy and food.

The move lifts Canada’s overnight rate to 1.5%, from 1%.

Canadian CPI inflation hit 6.8% in April, and the BoC predicts it will keep rising, with an increased risk of elevated inflation “becoming entrenched”.

It says:

The increase in global inflation is occurring as the global economy slows. The Russian invasion of Ukraine, China’s COVID-related lockdowns, and ongoing supply disruptions are all weighing on activity and boosting inflation.

The war has increased uncertainty and is putting further upward pressure on prices for energy and agricultural commodities. This is dampening the outlook, particularly in Europe.

In a hawkish signal to the markets, the Bank adds:

The pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and inflation, and the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target.

Growth at US factories slowed last month, matching the pattern in the UK and Europe, amid cooling demand, surging costs and material shortages.

Activity at America’s manufacturers increased at the softest pace sine January, as expansions in output, new orders and stocks of purchases waned.

Data from S&P Global found that:

• Production and new orders increase at slower rates
• Cost inflation fastest since November 2021’s series peak
• Business confidence drops to lowest since October 2020

This pulled the US manufacturing PMI down to 57 points for May, from 57.5 in April -- still comfortably above the 50-point mark showing stagnation.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said supply chain problems, problems hiring workers, and weaker demand all weighed on the sector:

“A solid expansion of manufacturing output in May should help drive an increase in GDP during the second quarter, with production growth running well above the average seen over the past decade.

However, the rate of growth has slowed as producers report ongoing issues with supply chain delays and labor shortages, as well as slower demand growth.

A cooling in new orders growth was in part linked to customers pushing back on high prices, though also reflected shortages and growing concern about the outlook. “Input cost pressures meanwhile intensified further during the month.

In the US, demand for mortgages continued to slow last week, as borrowers anticipate sharp rises in interest rates.

The Mortgage Bankers Association reported that applications for a loan to purchase a home fell 1% last week compared with the previous week, and were 14% lower than a year ago when the market was buoyant.

But a shortage of houses continues to keep prices higher,

Joel Kan, an MBA economist, explained:

Demand is high at the upper end of the market, and the supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers.

1 Jun 202208.05 EDT

Zoe Wood

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The legal battle between Colin the Caterpillar and the lookalike cake critter Cuthbert was one of the big celebrity courtroom dramas of the pre-Wagatha Christie era and it was feared the row would lead to Cuthbert being banished from Aldi’s shelves for ever.

But the cheeky moon-faced larva is back, with even more attitude than before, with Aldi announcing that Cuthbert cakes would go back on sale in its stores from Monday.

The “humble” cake was making his comeback after the Queen’s platinum jubilee celebrations to “avoid taking any of the spotlight away from her majesty”, the retailer joked.

The copycat cake spat made headlines last year after Marks & Spencer started legal action against Aldi to “protect” Colin from Cuthbert who, for a smaller fee, had been masquerading as Colin on the party circuit. With sweets decorating their hard chocolate shells and a grin on their white chocolate faces, it is difficult to tell the caterpillars apart.

At the time, M&S argued that the similarities meant consumers thought they were of the same standard, enabling the cheaper rival – at the time Cuthbert was £5 and Colin was £7 – to “ride on the coat-tails” of M&S’s reputation for high-quality food....

More here:

There are also transport problems in France today.

The Paris Airport authority, which manages Charles de Gaulle and Orly airports, has tweeted that software problems were disrupting border controls checks, causing delays.

Train operator Eurostar also warned that passport and security checks were taking longer than usual, due to problems with French authority control systems

Malaysia suspended exports of live chickens today to guarantee adequate supplies for domestic markets, as the global food crisis continues.

The move prompted distress and stockpiling in neighboring Singapore, where chicken rice is a national dish.

My colleague Rebecca Ratcliffe reports:

Supplies of Singapore’s beloved de-facto national dish, chicken and rice, are under threat after neighbouring Malaysia banned exports of the meat in an attempt to ease domestic price increases.

The Malaysian prime minister, Ismail Sabri Yaakob, announced last week that the country would block exports of 3.6 million chickens a month from 1 June to stabilise supply at home. The ban is expected to lead to price increases and shortages in Singapore, which relies upon Malaysia for a third of its poultry imports.

On Tuesday, queues formed outside popular food stalls as the public rushed to buy dishes before the ban was imposed, while local media reported that some supermarkets and wet markets had sold out of chicken.

1 Jun 202206.58 EDT

BA and easyJet cancel more than 150 flights as travel chaos continues

Joanna Partridge

British Airways and easyJet cancelled more than 150 flights to and from the UK on Wednesday, as holidaymakers faced further departure lounge delays going into the extended Queen’s platinum jubilee bank holiday.

BA cancelled at least 124 short-haul flights at Heathrow airport, although the airline said passengers were given advance notice.

The low-cost carrier easyJet scrapped at least 31 flights at Gatwick airport, including those scheduled to depart for Bologna, Barcelona, Prague, Krakow, and Edinburgh.

The travel operator Tui has cancelled six flights a day from Manchester airport for the whole of June. Manchester airport blamed the move on staffing shortages at Tui and its ground handler Swissport, which manages its check-in and baggage handling.

In the latest day of flight cancellations and disruption at airports, one easyJet passenger tweeted a photograph taken shortly after 4am at Manchester airport, which showed a lengthy queue of people in the terminal’s car park.

Describing the situation as “carnage”, the passenger wrote:

“Took two hours 45 minutes to get through - most of that was bag drop. Now on the aircraft, but due to shortage of ground crew, there’s going to be another delay of approximately 50 minutes.”

Our North of England editor, Helen Pidd, has spotted that the owner of a Manchester burger van has also had their holiday cancelled:

1 Jun 202206.34 EDT

Jasper Jolly

The world’s largest traditional carmakers could improve their profit margins and boost their value to investors by accelerating the transition to electric cars in the next decade, a new analysis has found.

The electric carmaking operations of Toyota, Volkswagen, Stellantis, Volvo, BMW and Mercedes-Benz will rapidly become more profitable than their traditional petrol and diesel counterparts within the next three to five years as carbon emissions regulations tighten, according to modelling by Profundo, a consultancy.

Here’s the full story:

Unemployment across the eurozone has stuck at a record low, despite the Ukraine war hitting growth and driving up inflation.

The eurozone jobless rate remained at 6.8% in April, data body Eurostat reports, matching March’s figure, and down from 8.2% in April 2021.

The number of people out of work in the eurozone has dropped by 2.175m in the last year, as Covid-19 vaccine rollouts allowed economies to reopen.

There are now 11.181m men and women out of work in the euro area, and 13.264m in the wider EU.

ING’s senior eurozone economist, Bert Colijn, says:

Employment expectations remain much stronger than economic sentiment at this point.

While the economy is clearly cooling, we see that businesses still have decent intentions to hire for the months ahead.

Here’s some expert reaction to the drop in the UK’s manufacturing PMI to a 16-month low in May.

Martin Beck, chief economic advisor to the EY ITEM Club, warns that factories face a poor outlook:

“The survey’s new orders balance slowed a greater degree of softness than the headline index, also falling to a level not seen since January 2021, and its measure of business optimism fell to a 17-month low. Both bode poorly for the manufacturing sector and the PMI in coming months. And the headwinds confronting the sector point in the same direction.

For one, May’s PMI survey signalled that cost and price pressures remain elevated. There was a rapid rise in input costs, if easing a little from April’s survey-record high, with a similar story for factory gate price inflation.

“With the poor results for the consumer sub-sector suggesting that the impact of the squeeze on household finances is beginning to make its mark, the outlook for the manufacturing sector is poor.”

Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank, says continued supply chain issues and labour shortages are hitting manufacturing.

Firms are struggling to hire themselves out of the situation because of the competition to fill vacancies.

The increased salary offers firms must make to secure the people they need are adding to a growing list of cost pressures.

Mike Thornton, national head of manufacturing at RSM UK, argues that manufacturers are coping relatively well:

‘Although the manufacturing PMI decreased in May from 55.8 to 54.6, the relatively small fall shows that the manufacturing sector is coping well with supply chain disruption which continues to be exacerbated by the Russia-Ukraine crisis and the latest lockdowns in China.

The stocks of finished goods balance sits at the highest level this decade which suggests resilient manufacturers have adapted well to the global shock of Covid and component shortages, and are getting a grip on their supply chains, despite a multitude of headwinds.

‘There is pent-up demand for goods post-pandemic which is also driving production, but new orders seem to be starting to slow, particularly exports which hit the lowest level since the first lockdown.

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UK factory activity expanded at its weakest rate since January 2021, due to a slowdown in output growth, new orders and hiring.

British manufacturers were hit by weaker growth of domestic demand and falling exports last month, with ongoing disruption caused by stretched supply chains, rising cost pressures and the war in Ukraine also biting.

This pulled S&P Global’s UK manufacturing PMI, which measures activity in the sector, down to 54.6, the lowest in 16 months.

Output growth slowed to its lowest since last autumn, with demand for consumer good particularly weak.

Rob Dobson, Director at S&P Global Market Intelligence, said:

“The rate of expansion in UK manufacturing output eased to a seven-month low in May as companies face a barrage of headwinds.

Factories are reporting a slowdown in domestic demand, falling exports, shortages of inputs and staff, rising cost pressures and heightened concern about the outlook given geopolitical uncertainties. The consumer goods sector was especially hard hit, as household demand slumped in response to the ongoing cost of living crisis.

With both input costs and selling prices rising at rates close to April’s peaks, the surveys suggest that there is no sign of the inflationary surge abating any time soon. Manufacturers continue to report issues getting the right materials, at the right time for the right price, and energy prices remain a major concern.

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Forward-looking indicators from the survey suggest that a further slowdown may be ahead, Dobson adds:

Business optimism dipped to a 17-month low and weaker demand growth led to surplus production, meaning warehouse stock levels are rising. Any reversal of this stock-building trend could reinforce the drag of other headwinds and add to downside risks to the outlook.

That drop in optimism chimes with the Institute of Directors’ warning that confidence dropped last month.

German retail sales took a tumble in April, adding to fears that Europe’s largest economy could be heading into recession.

Turnover at German retailers slumped by 5.4% in April, as consumers were hit by higher prices, especially for food, and retailers face supply problems from the China lockdowns.

Reuters has more details:

Grocery retailers saw a sales decrease of 7.7% in April, the biggest month-on-month drop since the time series began in 1994, said the office, pointing to significant rises in food prices.

Trade in textiles, clothing, shoes and leather goods, as well as department stores and sales outlets, saw significant sales increases in April 2022 compared with the year before, which was marked by pandemic closures, but recorded significant drops from March 2022 of 4.3% and 7.0%, respectively.

Eurozone factories have suffered their first drop in new orders in almost two years, as rising inflation hits demand.

Manufacturing growth in the euro zone slowed last month as factories faced supply shortages, high prices and a fall in demand.

That’s according to the latest survey of purchasing managers from S&P Global, which found that factory growth slowed in the Netherlands, Austria, Ireland, France, Greece and Italy:

New orders placed with euro area manufacturers declined for the first time since June 2020, with factories blaming price rises, weaker demand to the war in Ukraine, supply issues and heightened uncertainty.

S&P Global says:

Eurozone manufacturing fragility was once again clear in the latest PMI survey for May as manufacturing new orders fell for the first time since June 2020.

Although output growth picked up marginally from April’s recent low, it remained sluggish, while business confidence was among the lowest seen over the past two years amid sustained concerns surrounding the outlook for prices, supply chains and demand.

Its eurozone manufacturing PMI dipped to 54.6 in May from April’s 55.5, the lowest since November 2020.

An index measuring output inched up to 51.3, away from 50.7 [50 points = stagnation]