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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK to be slowest-growing G7 economy next year, warns OECD – as it happened

Shell Jerome Powell Interest Rates United States Inflation ING ECB US Federal Reserve
The City of London skyline in London
The City of London skyline in London Photograph: Hollie Adams/Reuters

Closing post

Time to wrap up…. here are today’s main stories:

Analysis: OECD forecasts are blow to Sunak and Hunt’s claims UK economy is improving

A lack of skilled workers in the country is pushing up UK wages. The dearth of affordable housing has seen landlords put up rent by 9% in a single year, weighing on inflation. New costs and controls at the border after Brexit are creating headaches for exporting companies.

This cocktail of pressures on the UK economy has prompted analysts from the Organisation for Economic Cooperation and Development (OECD) to undercut the UK’s own national forecasts for growth. By 2025, the Paris-based thinktank says, UK growth will be below that of any advanced economy in the G7.

More here.

Shipping giant Maersk has raised its profit guidance today, as Middle East tensions lift its earnings.

Maersk told shareholders that earnings in the first quarter of this year had shown “a strong recovery” compared to the fourth quarter of 2023. This was due to a good performance at its terminals business, plus higher demand and the “prolonged Red Sea crisis”.

Maersk predicts that these conditions will continue well into the second half of the year, meaning it has lifted the lower end of its profit guidance range. It now expects underlying EBIT to be between -$2bn and $0bn.

Houthi attacks on shipping in the Red Sea and Gulf of Aden has forced many ships to reroute around Africa, rather than travel through the Suez Canal. That has pushed up shipping costs.

Vincent Clerc, CEO of Maersk, explained:

Demand is trending towards the higher end of our market growth guidance and conditions in the Red Sea remain entrenched. This not only supported a recovery in the first quarter compared to the previous quarter, but also provide an improved outlook for the coming quarters, as we now expect these conditions to stay with us for most of the year.

Sky: Goldman to abolish EU cap on bonuses for top UK staff

Six months after the UK scrapped its cap on bankers’ bonuses, Goldman Sachs staff are about to reap the benefits.

Sky News’s Mark Kleinman reports that Goldman staff have just been told that it will abolish the EU cap on bonuses for hundreds of its top UK-based staff.

This will allow it to make multimillion pound payouts to its best-performing traders and dealmakers.

The old bonus rules capped banker bonuses at two times their annual salary, and were brought in after the financial crisis – where a bonus culture was blamed for encouraging short-term profits over longer-term stability.

US jobless claims flat

Just in: The number of Americans filing new jobless claims remained low last week.

There were 208,000 “initial claims” for jobless support – a proxy for layoffs – last week, matching the previous week’s level.

This remains a historically low level of jobless claims, suggesting that US companies are holding onto workers. That tight labour market is one reason the US Federal Reserve is reluctant to start cutting interest rates yet.

Peloton cutting 400 jobs, as CEO departs

There’s a shake-up at Peloton, the one-time pandemic lockdown fitness darling.

Peloton has anounced that CEO Barry McCarthy will be stepping down just over two years after he took over from founder John Foley.

The exercise kit maker is also cutting its global headcount by approximately 15%, which will effect roughly 400 Peloton staff, as part of a cost-cutting plan that aims to save more than $200m per year.

Peloton says:

This restructuring will position Peloton for sustained, positive free cash flow, while enabling the company to continue to invest in software, hardware and content innovation, improvements to its member support experience, and optimizations to marketing efforts to scale the business.

Karen Boone, current Peloton chairperson, and Chris Bruzzo, a Peloton director, will serve as interim Co-CEOs while a replacement for McCarthy is found.

Peloton boomed during the at-home exercise boom during Covid, but suffered as many of its users returned to gyms. In February, Peloton’s shares tumbled when it cut its sales forecast.

The oil price has risen from its lowest levels since mid-March today, amid reports that the Opec+ cartel could extend their production cuts.

Brent crude has gained around 0.5% today to $89.30 per barrel. Last night it touched a seven-week low of $83.29 per barrel.

Reuters reported this morning that OPEC and its allies have yet to begin formal talks on extending 2.2 million barrels per day of voluntary oil output cuts beyond June, but three sources from OPEC+ producers who have reduced production said they could extend if demand fails to pick up.

Opec, and allies including Russia, are due to next meet on 1 June to set output policy.

Hong Kong’s economy picked up pace in the first quarter of the year, new growth figures show.

Hong Kong’s GDP grew by 2.3% in the January-March quarter, as a rise in tourists boosted services exports, up from 0.4% in the previous quarter.

On an annual bases, GDO was up 2.7% – which is towards the lower end of the government’s forecast.

Uber faces £250m lawsuit from London’s black-cab drivers

More than 10,500 of London’s black-cab drivers have launched a £250m legal case against Uber, accusing it of breaking the capital’s taxi booking rules and deliberately misleading authorities to secure a licence.

The case, which has been filed in the high court in London by the litigation management firm RGL, resurrects a claim first raised five years ago, related to the way the ride-hailing app operated in London between 2012 and 2018.

Cabbies allege that Uber allowed drivers to take bookings directly from customers rather than through a centralised system like those used by minicab services, in a direct breach of private hire rules.

They allege Uber was aware of the rules and deliberately misled Transport for London (TfL) about its booking model in order to obtain an operating licence and take business from black-cab drivers.

Updated

Full story: UK will be worst performer in G7 next year, OECD forecasts

The UK will be the worst-performing economy in the G7 next year, according to the Organisation for Economic Cooperation and Development, as high interest rates and the lingering effects of last year’s surge in inflation weigh.

In a downbeat assessment, the Paris-based thinktank also downgraded its forecast for UK growth this year to 0.4% from a November forecast of 0.7%.

The UK will fall to the bottom of the G7 growth league in 2025, the OECD predicts, with growth of 1%, just behind Germany at 1.1%. US and Canada are forecast to be the fastest growing economies the G7 next year, both growing 1.8%.

More here.

The OECD also points out that 2023 was a difficult year for many countries, including the UK:

A rising number of economies experienced a technical recession in 2023, with two or more consecutive quarterly output declines.

Output declined in 12 OECD economies over the year to the fourth quarter, including Germany and the United Kingdom, and stagnated in the euro area.

This weakness in Europe reflects the lingering effects from the large energy price shock in 2022 and the slowdown in credit growth in economies with a relatively high dependence on bank-based financing

Updated

The encouraging message from the OECD today is that the world economy is likely to avoid a stagflationary rut.

Today’s economic outlook upgrades the forecast for global growth this year to 3.1%, from 2.9% in February, with the US and India’s forecasts lifted the most. Global growth is then seen inching up to 3.2% in 2025.

Inflation is expected to drop, though, from an OECD average of 5% this year to 3.4% next year.

The OECD says that the overall risks around the outlook are becoming “better balanced”, but flags there is “substantial uncertainty”.

It adds:

High geopolitical tensions remain a significant near-term adverse risk, particularly if the evolving conflicts in the Middle East were to intensify and disrupt energy and financial markets, pushing up inflation and reducing growth.

Eurozone factory activity takes a turn for the worse

The latest economic data from the eurozone isn’t too cheering, either.

The euro area’s manufacturing sector took a turn for the worst last month, shrinking at a faster rate than in March, according to the monthly poll of purchasing managers from S&P Global.

The eurozone manufacturing PMI fell to 45.7, down from March’s 46.1, which is a four-month low.

However, the PMI’s output index did rise to a 12-month high of 47.3, still below the 50-point mark splitting expansion from contraction. That indicates factory production fell at the slowest pace in a year.

Factories reported that new order declined at a faster rate, suggesting weak demand is hurting the manufacturing sector.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:

“What is going to rescue the Eurozone economy? While this is a difficult question, one thing is clear: It’s not the manufacturing sector. Instead, this sector is prolonging its drawn out recession into April. Output shrank at a similar pace as in the months before and companies have reduced their purchases at an accelerated rate.

Compounding the issue, there is no sign of a turnaround in the inventory cycle, but instead we saw a sustained trend of depleting stockpiles of both purchased and final goods in April.

Data yesterday showed the UK manufacturing sector slipped into a small contraction last month, with the PMI falling to 49.1, from 50.3 in March.

The latest real-time data tracking the UK economy is out, showing a dip in consumer spending last week and lower job adverts than a year ago.

The Office for National Statistics reports:

  • SPENDING/BEHAVIOUR - Aggregate UK spending on credit and debit cards decreased by 1% in the latest week and fell by 8% when compared with the equivalent week of 2023; while, when compared with the previous week, retail park footfall increased by 3% and transactions at Pret A Manger stores increased in 8 of 10 location categories.

  • JOB ADVERTS - Figures from Adzuna show the total number of online job adverts on 26 April 2024 remained broadly unchanged when compared with the previous week but was 20% below the level seen for the equivalent period of 2023.

PwC: UK stuck in slow-growth lane

Today’s OECD forecasts show the UK is stuck in the ‘slow growth’ lane, warns Barret Kupelian, chief economist at PwC UK

Kupelian explains:

“The OECD expects UK economic activity to grow by 0.4% this year and 1% next year. However, the OECD’s forecasts show the UK is stuck in the ‘slow growth’ lane, when compared to other large European economies. This is also supported by our own in house forecasts.

“In the short-term, we expect economic activity to pick up, mainly led by private sector activity and consumer spending. Some of this will be helped by the Bank of England likely gradually easing its monetary policy in the second half of the year. The report suggests there is momentum to the UK’s economic turnaround in key economic areas, including house purchase activity and a rise in both consumer and business confidence.

“Long term, the UK will need to build a comprehensive industrial and services plan which addresses its main economic shortcomings, i.e. planning rules, skills reform, and issues surrounding the provision of public services. Building a framework to address these areas whilst also dealing with the green and digital transitions will be key to grow private and public sector productivity and resilience.”

OECD: UK monetary policy will ease from Q3

The OECD expects the Bank of England will start to cut interest rates by the autumn.

It says:

Monetary policy is assumed to start easing from the third quarter of 2024, with Bank Rate gradually lowered from its current peak of 5.25% to 3.75% by the end of 2025, as inflation continues converging towards target.

Incidentally, the OECD’s chief economist, Clare Lombardelli, is joining the BoE this summer as deputy governor.

The OECD also predicts that UK unemployment will rise “as the labour market cools”.

It also expects that rising wages will support consumer spending over the next two years.

While that’s better news for workers, it could also add to inflation pressures – making it harder for the Bank of England to lower interest rates.

The OECD’s report says about the UK:

GDP growth is projected to remain sluggish at 0.4% in 2024 before improving to 1.0% in 2025, reflecting the waning drag from past monetary tightening.

Stronger real wage growth will support a modest pick-up in private consumption. Headline inflation is expected to continue moderating towards target as energy and food prices have eased substantially, but persistent services price pressures will keep core inflation elevated at 3.3% in 2024 and 2.5% in 2025.

Unemployment will continue increasing and reach 4.7% in 2025 as the labour market cools, although the actual degree of slack remains uncertain.

Here’s another chart showing the OECD’s new inflation forecasts:

Here’s Darren Jones MP, Labour’s Shadow Chief Secretary to the Treasury, on the OECD’s warning that Britain will be the slowest-growing member of the G7 in 2025.

“Today’s news that growth has been downgraded again reminds the British people what they already know: after 14 years of failure, the Conservatives cannot fix the economy because they are the reason it is broken.

“It’s time for change. Only Labour has a long-term plan to grow the economy and make working people better off.”

Novo Nordisk raises outlook fuelled by weight loss drug demand

Novo Nordisk, the Danish pharmaceutical company behind the Wegovy weight loss drug, has beaten profit expectations as demand booms.

Novo Nordisk’s sales increased by 22% in the first quarter, while operating profit rose by 27%.

CEO Lars Fruergaard Jørgensen says:

“We are pleased with the sales growth in the first three months of 2024, driven by increased demand for our GLP-1-based diabetes and obesity treatments,”

Booming demand for Wegovy – which was made available in the UK last September – drove up Novo Nordisk’s share price to record levels and making it Europe’s most valuable company.

The company has lifted its forecasts for the year. It now expects sales growth this year of between 19% and 27% in local currencies, compared to the previously guided range for 18% to 26% growth.

Operating profit growth this year is now seen at between 22% and 30% in local currencies, slightly up from its previous forecast of 21% to 29%.

However, Novo’s share price has dipped by 1.5% this morning.

Updated

Hunt: We're winning the war on inflation

Chancellor of the Exchequer Jeremy Hunt has said the OECD’s forecast isn’t a surprise.

Responding to today economic outlook, Hunt says:

“This forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates.

But now we are winning that war, growth matters which is why it is significant that last month the IMF predicted the UK will grow faster over the next 6 years than any European G7 country or Japan. To sustain that we need to stick to our plan - competitive taxes, a flexible labour market and far-reaching welfare reform.”

However, the OECD’s forecasts shows inflaton will be HIGHER in the UK this year than in the US, Germany, France, Italy or the European Union, although lower than the OECD average.

UK inflation is forecast to average 2.7% this year and fall to 2.3% next year – still above the Bank of England’s target –

Argentina, though, could suffer 200% inflation this year:

Updated

The OECD blames high interest rates for Britain’s weak growth outlook, after the Bank of England lifted borrowing costs to a 16-year high.

It says:

“GDP growth is projected to remain sluggish [in the face of a] waning drag from past monetary tightening.”

OECD chart: UK will have weakest growth across the G7 in 2025

The OECD’s new forecasts (see here) suggest the UK will be the second-weakest growing advanced economy this year, and the slowest next year.

For 2024, Germany is expected to be the slowest G7 member with just 0.2% growth, behind the UK’s 0.4%, and Japan at 0.5%.

France and Italy (and the eurozone) are seen growing by 0.7% this year, while Canada is expected to grow by 1%, with the US (again) in the lead with 2.6% growth.

But for 2025, the UK slips to the back, with 1% growth, behind Germany at 1.1%.

The OECD also forecasts a very deep recession in Argentina, followed by a recovery in 2025, as president Javier Milei drives though his free market reform package.

The OECD says:

Developments continue to diverge across countries, with softer outcomes in many advanced economies, especially in Europe, offset by strong growth in the United States and many emerging market economies.

Updated

OECD cuts UK growth forecast

Newsflash: Britain’s economy will grow slower this year and next than previously thought, the Organisation for Economic Co-operation and Development has warned.

New OECD forecasts also show the UK will suffer higher inflation than its peers.

The OECD cuts its British economic growth forecast to 0.4% for 2024, down from 0.7% forecast in February.

UK growth next year is expected to rise to 1.0%, compared with a previous forecast of 1.2%.

It means the OECD expects Britain’s economy will grow more slowly in 2025 than France or Germany.

Consumer prices are expected to rise more quickly in Britain during 2024 and 2025.

Looking more broadly, the OECD says global activity has proved surprisingly resilient so far.

Global GDP growth is projected to be 3.1% in 2024 and 3.2% in 2025, compared with 3.1% growth in 2023.

The OECD says:

Global growth in 2023 continued at an annual rate above 3%, despite the drag exerted by tighter financial conditions and other adverse factors, including Russia’s war of aggression against Ukraine and the evolving conflict in the Middle East.

Global GDP growth is projected at 3.1% in 2024 and 3.2% in 2025, little changed from the 3.1% in 2023. This is weaker than seen in the decade before the global financial crisis, but close to currently estimated potential growth rates in both advanced and emerging market economies.

Updated

BNY Mellon: Fed sets the stage for a volatile summer

The Fed has set the stage for “a volatile summer ahead”, says BNY Mellon’s macro strategist John Velis.

He told clients:

The outcome of this week’s Federal Open Market Committee meeting turned out to be less hawkish than we – and apparently markets – expected.

The key phrase in the statement was unchanged, “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”, so the Fed continues to affirm its bias towards easing policy.

Velis added:

To us, this decision to hold, and to still view an eventual cut as the most likely future move, sets the stage for a volatile summer ahead.

Effectively, the Fed is data dependent, meaning every data release – especially as relates to inflation – acts as a referendum on where the Fed will go (or not go). There hasn’t been a lot to suggest inflation is going to moderate.

One of Jerome Powell’s predecessors, Alan Greenspan, once remarked: “If I seem unduly clear to you, you must have misunderstood what I said.”

And today, investors seem to broadly agree that the Fed wasn’t as hawkish as it could have been…

Goldman Sachs are in the dovish camp – they still expect two rate cuts this year:

Jim Reid, strategist at Deutsche Bank, says “it’s hard to say it was a dovish meeting”:

The main flashes from the Fed last night was that while the FOMC made several hawkish tweaks, Powell signalled that rate hikes remained unlikely and the Fed announced a slightly-larger-than-expected slowing of QT.

It’s hard to say it was a dovish meeting but given the recent inflation prints it could have been a lot more hawkish.

Kyle Rodda, analyst at capital.com, argues that the Fed’s tone was “less-hawkish-than-feared”.

Ultimately, the bar was set high for a hawkish surprise last night, and the central bank did not attempt to leap it, striking an overall neutral tone and leading to a brief flurry of bullishness in the market.

Slightly more than one cut was baked into the futures curve going into the meeting, with the odds of another increasing at the margins after last night’s meeting. As a result, yields edged lower, and the US Dollar dropped, with gold also rallying.

Updated

Anger as Shell beats profit forecasts

Energy giant Shell has beaten City expectations this morning by reporting adjusted earnings of $7.7bn for the first quarter of 2024.

Shell’s earnings were lower than a year ago – it made a bumper $9.6bn in Q1 2023 – but well above analyst predictions of $6.5bn.

Shareholders will – again – benefit, with Shell announcing a new $3.5bn share buyback programme this morning.

CEO Wael Sawan says:

“Shell delivered another quarter of strong operational and financial performance, demonstrating our continued focus on delivering more value with less emissions,”

Alexander Kirk, fossil fuel campaigner at Global Witness, says such huge profits show the energy system simply doesn’t work:

“Shell continuing to rake in huge sums of money shows us that huge polluter profits were not a one-off but are the twisted reality of an energy system that benefits climate-wrecking companies to the cost of everyone else.”

“Companies like Shell saw record profits while the energy crisis dragged millions of families into poverty through unaffordable energy bills. Meanwhile fossil fuel giants fought hard against paying more tax.

“This is the sad irony of the global energy system in which those causing chaos are the ones getting rich. This spiral won’t stop until we make the urgent switch to a fairer renewable energy system that puts both people and planet first.”

Updated

Two UK rate cuts in 2024 are not fully priced in

Back in 1971, the US Treasury Secretary John Connally caused a stir by declaring that “The dollar is our currency, but it’s your problem.”

And the Federal Reserve’s stance on interest rate also has global implications. If US interest rates stay higher for longer, it’s hard for other central banks around the world to cut interest rates without weakening their currencies against the greenback (which is inflationary).

Investors have been cutting back on their forecasts for early cuts to UK interest rates.

Currently, the money markets are pricing in around 42 basis points of cuts to UK rates this – that means one quarter point (25bp) cut is certain and a second is possible.

In early trading this morning, the first Bank of England rate cut is fully priced in for September, although there’s a greater than evens chance it will happen in August.

Updated

Introduction: Fed chair chair Powell signals interest rates will remain higher for longer

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Hopes of early interest rate cuts are fading today after America’s central bank left borrowing costs on hold last night and chafed at the ‘lack of further progress’ on inflation.

Last night, the Federal Reserve left its policy rate unchanged, as expected, given inflation rose back to 3.5% in March – further from its 2% target.

The Fed was clear that recent data has not given it the confidence it needs that inflation is moving sustainably toward target.

Federal Reserve chair Jerome Powell told reporters last night:

It is likely that gaining such greater confidence will take longer than previously expected. We are prepared to maintain the current target range for the federal funds rate for as long as appropriate.

Powell added that the Fed was “prepared to respond” if the jobs market weakened unexpectedly.

The Fed chair indicated he simply didn’t know when interest rate cuts will be justified, but felt it unlikely that the Fed’s next move would be to hike rates.

The Fed did make one change – it slowed the pace of its quantitative tightening programme, under which it sells bonds bought under its stimulus programmes.

After a volatile session on Wall Street, the S&P 500 index closed down 0.35%.

Powell’s message was that current policy was in a good place, explains ING’s economics team. They told clients this morning:

At the press conference, Powell reiterated that he feels monetary policy is “restrictive” and that an interest rate hike is “unlikely”, but that will be up to the data to determine – he would need “persuasive evidence” that monetary policy isn’t tight enough.

He then repeated that 16 April comment that gaining confidence inflation is coming down and they can cut interest rates is taking “longer than thought” and he doesn’t know if it will be achieved this year. However, with inflation having moved below 3% he argues that the employment goal of the Fed comes back into focus.

He says the current policy stance “is in a good place” and in response to a question of a risk of stagflation – weakening growth and high inflation – he doesn’t see “the Stag or the Flation”.

US interest rates are currently set at a 5.25-5.5% range.

According to the CME Fedwatch tool, there’s now a 31% chance that the Fed will have cut interest rates twice by the end of this year – to 4.75%-5% – and a 38% chance of only one rate cut.

At the start of this year, investors expected six quarter-point cuts, but persistent inflation has dampened those expectations.

The agenda

  • 8am BST: OECD to publish half yearly economic outlook

  • 9am BST: Eurozone manufacturing PMI for April

  • 9.30am BST: Hong Kong’s GDP report for Q1 2024

  • 1.30pm BST: US trade balance for March

  • 1.30pm BST: US weekly jobless data

Updated

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