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The Guardian - UK

Business

Graeme Wearden

Mild recession forecast in UK, as trade deals with Australia and New Zealand worry farmers – as it happened

United Kingdom Australia China New Zealand David Barton George Eustice Inflation Beano Economy

The Bank of England in London. Photograph: Tolga Akmen/EPA

4.38pm BST

A late PS: international trade minister Nigel Huddleston has assured farmers that the UK Government has “got their backs” when it comes to protecting domestic food producers.

Huddleston said there were “safeguards” within the terms of the deals to allow ministers to prevent the UK market being “flooded” with Australian and New Zealand produce.

Should those mechanisms, including stalling the timetable for tariff liberalisation, fail to arrest the problem, the UK could decide to exit the free trade agreements altogether, Mr Huddleston said – although he stressed that he did not think such drastic action would be necessary.

Speaking to the PA news agency, the minister said:

“There were some concerns from certain parts of the sector about what if all of a sudden there was a massive surge and they were flooded with imports, so we put protections in place.

“It literally is in the details of the deal so that we’ve got bilateral safeguards in place, a number of protections.

“Also tariff reductions come in over time. That was deliberately done to provide additional reassurance, to the farming sector in particular, that we’ve got their backs and we’re looking after them, literally to the point that if there’s a massive surge, we can call a pause in the deal and say, ‘Right, hold off for a couple of years until we’re able to restabilise’.”

4.02pm BST

Afternoon summary

Time for a quick round-up: here are the main stories so far:

4.01pm BST

FTSE 100 hits two-month low

Economic jitters have pushed the UK’s blue-chip share index down to its lowest in two months.

The FTSE 100 index has lost another 64 points, or 0.85%, to 7457 points, the lowest since the last week of March.

The unexpectly large fall in China’s manufacturing output this month (see early post) has weighed on confidence today.

Insurance group Prudential (-5.8%) are the top faller, after announcing this morning that CFO James Turner has resigned in the wake of an investigation into his conduct “relating to a recent recruitment situation”.

It’s followed by Ocado, down 5.5%, despite suggestions that the online grocery technology firm could cling onto its place in the FTSE 100 when the quarterly reshuffle is announced tonight.

‘’Ocado, like Everton, looks like it may have escaped relegation at the last gasp as the FTSE reshuffle deadline loomed,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown:

Streeter added:

Instead, it looks like British Land will be demoted, after shares in the commercial property giant fell further as fresh hikes in interest rates were forecast.

The value of its property portfolio had already been sideswiped by the rapid tightening in monetary policy and the shocker of an inflation reading last week, dented the company’s valuation further.

Europe’s Stoxx 600 share index s also at a two-month low, as recession fears weighed on markets.

Updated at 4.12pm BST

3.46pm BST

JPMorgan chair Jamie Dimon has pledged that his bank remains committed to doing business in China as political tensions grow between Beijing and Washington.

Dimon told Bloomberg TV today that doesn’t foresee a decoupling between the West and China, although the situation is “far more complex now.”

“Over time there’ll be less trade,” Dimon said in a Bloomberg Television interview at the bank’s annual Global China Summit in Shanghai, adding:

“It’ll take years for this thing to take place, but it won’t be a decoupling and the world will go on.”

Dimon was speaking as economic data showed that China’s recovery faltered this month (see morning post).

3.31pm BST

Good news for US workers, but not for US central bankers.

The number of job vacancies across America has risen. In April, there were 10.1 million vacancies, up from around 9.75 million in March.

Job openings increased in retail trade (+209,000); health care and social assistance (+185,000); and transportation, warehousing, and utilities (+154,000).

Analysts expected that the JOLTs Job Openings total would decline to 9.38 million, so this suggests the US labor market is holding up well despite the pressure from higher interest rates.

That could increase the possibility that the Federal Reserve pushes through another increase in interest rates in June.

The report also shows a small fall in the number of people choosing to quit their job, which can measure if workers are moving to better-paid roles.

In another sign of labor market strength, layoffs & discharges fell back to 1,581,000 in Apr, reversing Mar's spike & falling back below pre-pandemic levels.

The spike & fall were almost entirely due to construction where layoffs jumped 120k in Mar & fell 113k in Apr.#JOLTS 4/ pic.twitter.com/GWmag0BMfg
— Daniel Zhao (@DanielBZhao) May 31, 2023

3.25pm BST

India’s economy has beaten expectations, cementing its position as one of the world’s fastest growing economies.

India’s GDP grew by 6.1% in the year to March, beating expectations, up from 4.4% per year in the previous quarter. The economy was helped by a pick-up in government capital expenditure, and growth in manufacturing and agriculture.

The full-year growth estimate was revised to 7.2%, above an earlier estimate of 7%. India’s economy grew 9.1% in 2021/22.

India's GDP growth beats Street estimates, accelerates to 6.1% in March quarter; FY23 growth at 7.2%

FY23 fiscal deficit narrows to 6.4% of GDP
— Equitymrkt®📊 (@equitymrkt) May 31, 2023

As per latest NSO figures, released on 31st May 2023, India’s GDP growth for FY 2022-23 is 7.2%. The growth for Q4-FY 2023 is 6.1%.

At 7.2% GDP growth rate for FY 2022-23, India is now the fastest growing major economy in the world and is rightly being called a ‘Bright Spot’. pic.twitter.com/wlhaJ8cu5a
— Amit Malviya (@amitmalviya) May 31, 2023

3.05pm BST

A Bank of England policymaker has warned that Britain’s underlying inflation relative to the main measure of price growth is proving harder to tackle than in other countries.

Catherine Mann told a policy discussion organised by Swiss fund management firm Pictet that core inflation in the UK is looking more persistent.

Mann, a member of the BoE’s Monetary Policy Committee, said (via Reuters):

“The gap that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area,” Mann said in

“But nevertheless there is a gap between the headline, which is incorporating energy which went up really high and now has come down, and core where we do start to see the implications coming through pricing channels, through wage negotiations, into something that is persistent.”

Reminder: The UK’s headline rate of inflation dropped to 8.7% per year in April, but core inflation rose to 6.8% in the 12 months to April 2023, up from 6.2% in March.

Moody's predicts 'mild recessions' in the US, UK, and Germany,

Rating agency Moody’s has predicted there will be “mild recessions” in the US, UK, and Germany.

In a new report, Moody’s warns that tight financing conditions will lead to “a downshift” in global economic growth in the second half of this year, and also slow the recovery in 2024.

Moody’s predicts that the UK economy will contract by 0.1% this year, as the economy suffers from rising prices and high interest rates.

They predict that the Bank of England will raise interest rates by another quarter of one percent, to 4.75%, and keep monetary policy tight over the coming years, hitting spending and investment.

Moody’s says:

The UK’s relatively short-dated mortgage market means that around half of outstanding mortgages have a floating rate or will need to be refinanced at higher rates this year, which will reduce household disposable income

The money markets currently predict UK interest rates could peak near 5.5% by the end of this year, however, after inflation was troublingly high in April.

There are three principal risks to the global macroeconomic outlook, Moody’s warns: policymakers in advanced economies could fail to curb inflation, financial stability risks could materialize and spread through the economy, or a potential US government default if the US debt limit isn’t lifted in time.

Moody’s also predicts a mild recession in the US, despite policymakers reaching a tentative deal on the US debt limit to avoid a US default.

Annual US economic growth is expected to slow to around 1% in 2023 and 2024, just half the 2.1% recorded in 2022. But that includes a couple of quarters of sequential contraction, meaning a technical recession, which would push up unemployment.

Elsewhere, Moody’s says the steady decline in energy prices in Europe since the beginning of this year has provided much needed respite for households and businesses, leading to modest increase in growth in Italy and France this year.

But Germany’s economy is not expected to grow during 2023, having already dropped into recession in the first quarter of this year.

Moody’s says:

In Germany’s case, manufacturing sector weakness, labor shortages, high interest rates and sticky and elevated inflation cloud the economic outlook.

Updated at 12.16pm BST

12.03pm BST

Monzo boss defends latest loss

Monzo’s CEO has defended the online bank’s latest annual loss, saying that profitability has been a “choice” for the online bank, which will be last among rivals Starling and Revolut to turn a profit when it swings into the black this year.

The online bank has reported a loss of £116m for the year to February, slightly less than the £199m loss a year earlier.

That was despite seeing revenues more than double to £355m, as its customer base, transaction fees, and loan book grew over the financial year. It gained a further 1.5m personal customers – bringing its total to 7.2m – helping deposits jump 34% to £6bn.

However, its revenues were offset by a jump in staff and investment costs, as well as money put aside for potential defaults that Monzo said was primarily linked to a growing loan book, rather than any signs of trouble among its borrowers.

Monzo CEO TS Anil said he wasn’t concerned about the fact that Monzo was lagging behind rival online banks like Starling and Revolut, both of which have now reported annual profits.

“We’ve always seen profitability as a choice, meaning if we had wanted to be profitable - and that was all we were solving for - we could be profitable many quarters ago.”

Instead, he said Monzo was investing in new products, staff and infrastructure, and that the losses were “completely in line with the plan” that has been backed by investors.

Furthermore, he said, the bank reported its first monthly profit in March and is now set to join its rivals with its first annual profit at the end of the financial year.

Monzo also revealed that TS Anil’s remuneration dropped to £2.6m from £4m last year, a figure that it said has previously been boosted by a relocation package and the vesting of shares in his pay packet.

11.45am BST

Irish core inflation overtakes headline measure

In Ireland, core inflation has overtaken the headline cost of living measures – a sign that inflationary pressures are building.

New data shows that annual Irish inflation, on an EU-harmonised basis, rose by 5.4% over the last year, down from 6.3% in the year to April, the lowest since January 2022.

Worryingly, core inflation in Ireland accelerated to 5.7% from 5.2% a month earlier. That measure exclude the costs of energy and unprocessed food.

It’s the first time the rate of HICP excluding energy and unprocessed food has surpassed the headline rate since prices began to rise sharply in late 2021, Reuters reports.

It’s unusual for core inflation to be higher than the headline rate. Core inflation is designed to strip out the volatile factors that push up the cost of living, and to give a clearer picture of underlying price pressures.

In the UK in April, core inflation rose, to 6.8%, even though the headline inflation measure fell to 8.7%. If energy costs keep falling, and food price pressures abate, UK core inflation could potentially rise over the main CPI index too….

11.32am BST

Back in the eurozone, inflation has dropped in Italy but remains painfully high.

The EU-harmonised index of consumer prices in Italy fell to 8.1% on an annual basis this month, down from +8.7% in April, statistics body ISTAT reported, which is higher than expected.

The fall was due to a drop in the annual inflation rates for energy, processed food and alcohol, transport services and industrial goods.

JUST IN: Italy's inflation rate in May moderated to 8.1% but was significantly above the 7.5% estimate https://t.co/JljALqO2yB
— Bloomberg (@business) May 31, 2023

11.18am BST

Today’s plan for a new CBI insists the organisation has cultural strengths, including a "Clear purpose”, a “collegial work environment” and “pockets of good practice” (despite the lack of consistent and well-established processes).

But it concedes there are cultural weaknesses, and identifies five:

Values and behaviours gap: The CBI lacks a shared internal cultural ‘glue’ or foundation of clear values and conduct to guide expectations of behaviours.
Lack of cohesive, consistent organisational leadership capabilities: Leaders, and the Board, have focused on external goals, with limited oversight of the organisation or attending to risks.
Under-developed skills for people and team management: Abilities and behaviours needed to manage people and teams effectively and inclusively have been under-valued and under-developed.
Inattention to people and culture function: People and culture/HR has not been prioritised as a core strategic function with sufficient oversight from leaders and the Board.
Under-developed and inconsistent infrastructure: There is a lack of clear or consistent structures and processes for decision making. Activities are driven by the priorities of the Director General, with deep organisational siloes.

11.13am BST

The governance changes being proposed by the CBI include:

Accelerated changes in Board membership.
More frequent Board meetings.
An enhanced and additional committee structure, including a new People and Culture Committee.
An external expert Culture Advisory Committee chaired by Jill Ader and supported, amongst others, by Elizabeth Broderick, founder of Champions of Change Coalition.
A new Chair of Audit and Risk Committee, Victoria Cochrane, former Global Managing Partner, Risk Management at EY.
Annual re-election of the Board at the AGM.

The CBI is also pledging to produce a Business Manifesto for the General Election, by the end of 2023, and to engagae with ministers and officials to help shape economic debates.

10.36am BST

You can read the CBI’s new proposals online, here: A renewed CBI.

Introducing them, president Brian McBride says:

For almost 60 years, the CBI has been the recognised voice of business in the UK, representing the common interests of businesses across all sectors of industry and all regions and nations of the country. In that time, we have also continuously curated and shared best practice from and across industry, as a further service to our members.

The irony contained in the latter point is not lost on me. Whilst striving to represent and support our members to the highest standards, we simultaneously underestimated the daily effort required to maintain a great culture and the operational excellence of a growing CBI. The consequences of that failure, you already know. We share a deep sense of responsibility to put things right, so that we can continue to support you through the vital representation that the CBI provides. This prospectus will tell you how the CBI has changed and is continuing to change, in order to do that.

Updated at 10.37am BST

10.32am BST

Ffion Hague to evaluate CBI governance

The CBI has also hired board evaluation expert Ffion Hague to lead a “comprehensive” examination” of its governance structures and processes.

The findings of this work are expected to be shared with the CBI Board and with members by end of July 2023.

Brian McBride, CBI President, says:

“The need to bolster the CBI’s governance structures is something that has come through loud and clear during this period.

We are making significant and fundamental changes to improve our organisation for the better and for the people working in it. We remain determined to restore the confidence of our members, and that of our many stakeholders, in the CBI.”

Hague, a specialist in corporate governance, has been conducting board evaluations for over a decade, working with blue-chip companies including Vodafone, Schroders, Rio Tinto, Marks & Spencer and Centrica, and also the British Red Cross.

Ffion Hague married former Conservative leader William Hague in 1997, having worked in the Civil Service and taught the then-Secretary of State for Wales how to sing the Welsh national anthem.

She has also worked as a broadcaster, includig on the Welsh language TV channel S4C, and wrote a book on the women in prime minister David Lloyd George’s Life.

Updated at 10.56am BST

10.27am BST

CBI to recruit new president as part of governance shake-up

Newsflash: The CBI is to recruit a new president as part of a governance overhaul which it has just unveiled.

The business lobby group, which is battling for survival in the wake of sexual misconduct allegations, says it will conduct an “accelerated search” for a successor to president Brian McBride.

McBride, the CBI says, will immediately start the search for his successor while he oversees the changes being implemented at the group. The handover will begin no earlier than 1 January 2024, they add.

This is part of a range of changes set out by the CBI this morning, to changes to its culture and to rebuild ties with government. They are outlined in a prospectus shared with members ahead of a crunch meeting and confidence vote by its members on 6 June.

The measures include creating a new People and Culture sub-committee of the CBI Board that will focus on people and HR matters at the CBI, and an external expert Culture Advisory Committee.

Voting opens on Wednesday, with the results expected to be announced soon after next week’s meeting.

My colleague Anna Isaac reports:

Developed while the group mothballed its activities in April and May, the turnaround plan aims to “transform” the CBI’s culture in the long term, the group said. It follows an independent investigation into its handling of complaints by the law firm Fox Williams and an examination of its culture by the ethics consultancy Principia Advisory.

“We are making radical and rapid changes to upgrade our governance structures and processes,” said the group’s new director general, Rain Newton-Smith.

She added: “Principia’s expert findings show that while our purpose and hard work to influence and inform on behalf of our members gives us a strong identity and motivates our staff, that focus has come at a cost. Blanket accusations of the CBI’s culture being toxic are not correct, but we have work to do to embed a consistent set of values for all of our staff.”

More here:

Updated at 10.40am BST

10.22am BST

People getting a poor interest on their bank savings should “shop around"

Back in the UK, a government minister says that people who feel they are getting “very poor” interest on their savings from their bank should “shop around and find one that will pay a better rate”.

This is a hot issue, with banks slow to pass on the recent increases in Bank of England interest rates to savers.

Yesterday. Which? waned that the high street banks are shortchanging customers by hundreds of pounds every year, with measly savings rates.

Ttoday, Work and Pensions Secretary Mel Stride was asked by Kay Burley on Sky News what the Government should do about banks who are not offering competitive levels of interest rates for savers.

Mr Stride, who chaired the Treasury Select Committee for three years, said:

“I think, broadly speaking, the banking and financial services sector is a relatively efficient and highly competitive marketplace.

“So you would expect as one particular bank starts changing rates others to follow, but it is sticky, and of course, Government, the Business Department and Treasury and others are often involved in discussions with banks about exactly those kinds of things.”

Stride stressed it is a “free market”, before adding:

“My advice generally would be if you feel you’re getting a very poor rate with one particular institution is shop around and find one that will pay a better rate, and there are those out there.”

The UK’s City watchdog is introducing a new “consumer duty” this summer, which may may trigger a clampdown on those banks who are not offering fair rates to consumers.

9.51am BST

ECB's de Guindos: Positive news on eurozone inflation

The drop in euro zone inflation seen in regional data over the past two days has been bigger than forecast and point in the direction of a continued slowdown in price growth, European Central Bank Vice President Luis de Guindos says.

“The data that we received yesterday and today is positive,” de Guindos told a news conference this morning.

He added (via Reuters):

“Clearly the decline has been bigger than what was discounted by analysts and I think that is positive news.”

“The news we are receiving now is positive and goes in the direction of an important decline in headline inflation.”

Yesterday, data showed that Spain’s annual inflation rate fell to 3.2% in May, down from 4.1% in April.

On an EU-harmonised basis, inflation in Spain dropped to 2.9%, its lowest level for almost two years, which boosted hopes that price pressures will ease quickly across the eurozone.

We get the overall eurozone inflation report tomorrow morning, with Italian data due in a few minutes, and German’s CPI report at lunchtime today.

9.38am BST

As well as the welcome fall in French inflation (see earlier post) we also have confirmation that France’s economy grew by 0.2% in the first quarter of this year.

However, new data shows that French household consumption fell by 1% in April, indicating that demand for goods weakened (which will have put downward pressure on inflation too).

Charlotte de Montpellier, ING’s senior economist for France and Switzerland, says it is clear that the French economy is slowing sharply.

De Montpellier says:

The second quarter got off to a poor start in France, with household consumption falling for the third consecutive month in April, and the outlook has been revised downwards. Against a backdrop of falling demand, inflationary pressures are moderating more quickly than expected.

These figures show that the second quarter got off to a poor start. It is clear that the French economy is slowing sharply.

The prospect of a recovery later in the year seems to be fading. This has led us to revise our GDP outlook to 0.6% in 2023.https://t.co/lAyn0mNUkX
— ING Economics (@ING_Economics) May 31, 2023

Updated at 10.49am BST

9.06am BST

Following the fall in China’s factory output this month, Hong Kong’s Hang Seng share in index is down over 2% today:

Hang Seng Index down nearly 600 points now. Looks like 18,000 is about to go. Gawd pic.twitter.com/vE7Rjxrso1
— David Ingles (@DavidInglesTV) May 31, 2023

The Hang Seng index is 20% below its January peak – approaching what is considered a technical bear market, reports CNBC, adding:

Analysts had initially expected China’s economy to recover faster and earlier than expected, but that view quickly faded after the country continued to deliver disappointing economic data.

Tech stocks have been leading the selloff:

Hong Kong's Hang Seng Tech index has fallen over 25% since January, reflecting the struggling Chinese economy. Disappointing economic data and weak factory activity readings below the growth-contraction benchmark indicate a slower-than-expected ...

Read More :… pic.twitter.com/zYvS8dCHwe
— CoinUnited.io (@realCoinUnited) May 31, 2023

8.55am BST

French inflation drops

Economic news: Inflation across France has fallen, and by more than expected.

French consumer prices rose by 5.1% year-on-year in May, according to new estimates from statistics body Insee. That’s down from 5.9% in the year to April.

Insee estimates that consumer prices dropped by 0.1% during March, after rising by 0.6% in April, helped by a slowdown in food prices and services costs.

This is a boost to squeezed households and also the European Central Bank, which has raised interest rates since last summer to fight inflation.

Insee says:

This decrease in inflation should result from a year-on-year slowdown in prices of energy, food, manufactured goods and services. The prices of tobacco should accelerate for the third consecutive month.

On an EU-harmonised basis, French inflation fell in May. The Harmonised Index of Consumer Prices is estimated to have risen by 6.0% this month, down from 6.9% in April. That’s the lowest level in a year, Bloomberg points out.

French Inflation Slows More Than Expected to Weakest in Year https://t.co/TXZfgy6bg2 via @YahooFinance #france #inflation #energy #trade #interestrates #ECB
— Financial World, the magazine of @StudyLIBF (@_FinancialWorld) May 31, 2023

8.44am BST

In the City, shares in gambling group Entain have dropped 3.3% after it told shareholders it expects to incure a “substantial financial penalty” as part of an investigation by Britain’s tax authority.

In a statement, Entain said it is negotiating a deferred prosecution agreement (DPA) with the with the Crown Prosecution Service (CPS) and is working towards resolving an investigation by HMRC.

HMRC is examining “potential corporate offending” by a former Turkish subsidiary of Entain, whose brands include Ladbrokes, Coral, Gala and partypoker.

Entain told the City:

The Company understands that the HMRC investigation, which is ongoing, includes a review of its former Turkish-facing business and acknowledges that historical misconduct involving former third party suppliers and former employees of the Group may have occurred.

The Group continues to co-operate fully with HMRC and the CPS.

8.18am BST

Australian exports are hoping for a boost to business through the new free trade deal with the UK.

Australian producers of wine, beef, sheep meat, grains, rice, sugar and dairy products will benefit from duty-free quotas or tariff elimination.

Manufactured products such as auto parts and electrical equipment, as well as cosmetic products, will also receive a boost through the immediate elimination of UK tariffs.

But going the other way, British products including cars, whisky, confectionery, biscuits and cosmetics coming into Australia are expected to be cheaper.

The Australian assistant trade minister, Tim Ayres, said the deal would provide more opportunity for exporters, firms and workers.

He told ABC News Breakfast.

“They are one of our oldest friends of course, the United Kingdom, but this is a new chapter in the economic relationship and it means means new opportunities for Australian businesses.”

More here:

8.11am BST

Farmer: It's a bad deal; UK gave away too much

Cattle peacefully grazing on Dorney Common.

UK farmers are concerned that the British government gave too much away with the Australia/New Zealand trade deal which began at midnight, creating a bad precedent for the future.

Farmer David Barton, the chair of the National Farmers Union’s Livestock Board in the South West of the country, fears there will be a cumulative effect

Barton, who runs a beef suckler herd and grows cereals, told Radio 4’s Today Programme that the UK gave away “so much on this deal”.

He said:

It is such a bad deal because they gave so much away and any other trading nation will want exactly the same deal. So it’ll be the communicative effect over time that will be the problem.

So it may not be Australia on its own, but it will be other nations that want that deal.

The United States will certainly want that same deal of unlimited access to the UK markets. It is an important market, it’s a lucrative market.

Barton also warned of the risk of a ‘race to the bottom’ on food standards, given the differences between the UK and Australian agriculture, saying:

A race to the bottom for cheap food is not the way to sustain food security in the UK.

Plaid Cymru MP Ben Lake, the party’s agriculture spokesman in Westminster, fears the trade deals mark the “beginning of a worrying chapter” for Welsh farming.

Lake warned:

“As negotiations progress with Canada and Mexico, it is crucial that market protections are upheld.

“The UK Government’s evident failure to champion the interests of the Welsh economy in previous negotiations underlines the importance of according the devolved nations a role in future talks.”

Updated at 9.49am BST

7.55am BST

Signed Beanos heading down under

Two handpicked consignments of UK goods including signed copies of the Beano are heading to trade ministers of Australian and New Zealand, to mark the new trade deal that came into effect at midnight.

International trade minister Nigel Huddleston was expected to tour DHL’s Southern Distribution Centre near Heathrow to see the two shipments.

British goods from across the country including Beano comics signed by the comic’s editor John Anderson, Penderyn single malt Welsh whisky, Brighton Gin, The Cambridge Satchel Co. bags and Fever-Tree mixers are among the items being sent.

The parcels will also include an England cricket top signed by James Anderson and Emma Lamb, a Wales rugby shirt signed by the men’s team and a tennis racket from Gray’s of Cambridge.

Updated at 9.49am BST

7.54am BST

UK’s first post-Brexit trade deals with Australia and New Zealand begin

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

The UK’s post-Brexit trade deals with Australia and New Zealand came into force at midnight, but the economic impact may be relatively slight.

Under the first new trade arrangements struck since the UK left the European Union, the tariffs on all UK goods exports to Australia and New Zealand have been removed. It also removes UK import tariffs on the majority of goods from Australia and New Zealand.

The government says services markets have been opened up – something welcomed by the Law Society, for example – and that red tape has also been slashed for digital trade and work visas.

Hailing the deal, business and trade secretary Kemi Badenoch said:

“Today is a historic moment as our first trade deals to be negotiated post-Brexit come into effect.

“Businesses up and down the country will now be able to reap the rewards of our status as an independent trading nation and seize new opportunities, driving economic growth, innovation and higher wages.”

However…. the impact assessment of the deals shows that, in the long run, they would lift UK gross domestic product (GDP) by around £2.3bn “in the long run”. That’s when compared to projected levels of GDP in 2035, in today’s prices, without the agreement.

Former Conservative environment secretary George Eustice admitted last November that the UK’s post-Brexit trade deal with Australia was “not actually a very good deal” for Britain.

Eustice said the UK had given away “far too much for far too little in return”, as it strove to agree it’s first “from scratch” agreement.

According to Eustice, the then-trade secretary Liz Truss placed the UK in a poor negotiating position, by setting an arbitrary target to conclude an agreement by the time of a G7 summit.

More here: Former Tory minister lays into post-Brexit Australia trade deal

The deal could give younger Britons the opportunity to experience Australia, thanks to the expansion of the shared Youth Mobility and Working Holiday Maker visa schemes.

On July 1 2023, the age limit for UK applicants going to Australia will go from 30 to 35 years old, and from July 1 2024, Brits will be able to stay in Australia for up to three years without having to meet specified work requirements.

Also coming up today

We’ll find out if Europe’s cost of living squeeze eased this month, with new inflation data from France, Italy and Germany due. They’re all expected to show a fall, says Michael Hewson of CMC Markets, adding:

While this is expected to offer further encouragement that headline inflation in Europe is slowing, that isn’t the problem that is causing investors sleepless nights.

It’s the level of core inflation and for that we’ll have to wait until tomorrow and EU core CPI numbers for May, which aren’t expected to show much sign of slowing.

And in the UK, passengers are bracing for the first of three rail strikes this week as services in England come to a standstill amid a long-running dispute over pay and conditions.

Members of the drivers’ union Aslef will embark on a 24-hour strike on Wednesday. The union also plans to strike on Saturday.

On these days, no trains will run on networks including Avanti West Coast, Chiltern Railways, CrossCountry, East Midlands Railway, Great Northern, Southern, Southeastern, Thameslink and Northern.

The agenda

7.45am BST: French inflation report for May
8.55am BST: German unemployment report for May
10am BST: Italian inflation report for May
1pm BST: German inflation report for May
1.30pm BST: Canada’s Q1 GDP report
5pm BST: FTSE quarterly reshuffle announced

Updated at 8.13am BST

7.54am BST

China's factory activity falls faster than expected as recovery stumbles

The start of the UK’s trade deals with Australia and New Zealand comes as concerns grow over the health of the global economy.

Slowdown fears are swirling through markets after China’s factory activity contracted for the second month running.

Weakening demand hit Chinese manufacturers this month, suggesting activity is easing off – a worrying sign.

The official manufacturing purchasing managers’ index (PMI) fell to a five-month low of 48.8 in May, data from the National Bureau of Statistics (NBS) shows. That’s down from 49.2 in April, and below the 50-point mark that separates expansion from contraction. Economists had hoped for a rise to 49.4.

It’s the biggest drop in output since Beijing ended its zero-Covid policy in December.

The official Manufacturing PMI reading fell to 48.8, the lowest reading since December 2022 and weaker than the average estimate of 49.5. A reading below 50 indicates contraction from the previous month.#china #chinamanufacturer #chinaeconomy pic.twitter.com/sUJ2IUQZ0q
— Ahmed Azzam (@3zzamous) May 31, 2023

The slowdown could prompt China’s government to consider stimulus policies to support the economy.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains that China’s recovery is taking longer than hoped.

We shouldn’t expect China to post growth numbers comparable to levels pre-2020 because China under Xi Jinping’s rule is willing to avoid euphoric, and unhealthy growth.

This is why the government put in place severe crackdown measures on real estate, tech and education. That does not mean that China won’t get back in shape, but recovery will likely take longer, and growth will likely be more reasonable and a better reflection of the reality of the field.

The PMI data has helped to push Asia-Pacific stock markets lower. China’s CSI 300 has dropped 1%, while Japan’s Nikkei has lost 1.6% – its biggest daily decline since 5 April.

Australia’s S&P/ASX 200 is down 1.65%, reflecting the close economic links with China.

Updated at 9.03am BST

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