The clock is ticking for the UK government to extend safeguards protecting Britain’s steel sector.
My colleague Jasper Jolly explains:
The government is facing pressure from the UK steel industry and Labour to extend metal import limits brought in after Brexit, after a warning that a flood of products could cost British producers £150m in lost sales.
The international trade minister, Anne-Marie Trevelyan, must decide by 30 June whether to keep “steel safeguards” set out last year or remove the import limits on five categories of products, which include tin mill products, steel quarto plates and wire rod.
High global steel prices have helped the industry in recent months after years of turmoil, but British steelmakers say the UK removing limits before the EU would disadvantage them compared with European rivals, who already benefit from relatively lower energy costs.
The protectionist 25% tariffs on imports above a set quota were first imposed by the EU in 2018, when the UK was still a member, and were designed to protect domestic industries from a glut of steel products diverted from the US after Donald Trump imposed tariffs on non-US steel.
The pound has weakened further against the euro, to a 13-month low around €1.153.
After a positive start, the main US stock indices are now down in what Reuters has dubbed ‘choppy trading’.
The pound is continuing to sink… and has now dropped back to just above the $1.20 mark.
That means its down over a cent today at a new two-year low.
While sterling slides, the strengthening dollar has reached a new two-decade high against a basket of currencies ahead of tomorrow’s US interest rate decision.
Wall Street firms are now widely expecting a 75-basis point hike in borrowing costs, following media reports last night that this was now an option after US inflation surged again in May.
UK consumer confidence has dipped for the sixth month in a row.
The latest survey from YouGov and Cebr found that:
- Consumer confidence falls again (-0.6) – the index has now spent half a year in decline
- Household finance measures for the past 30 days (+2.1) and next 12 months (+3.9) creep upwards following four months of rapid deterioration
- Retrospective (-3.8) and forward-looking (-6.5) home value measures deteriorate amid reports of market slowdown
- Job security and business activity measures remain stagnant
Kay Neufeld, Head of Forecasting and Thought Leadership at Cebr, says the index continued its downward spiral in May.
Looking for a silver lining, we note that at least the pace of falls has started to slow, with the 0.6-point contraction being the mildest since December 2021.
Importantly, households’ perceptions regarding their financial situation have started to improve this month, albeit from a low base. The announcement of the Chancellor’s £15 billion cost-of-living support package will have gone some way to alleviating the most pressing concerns.
Nevertheless, the fact that the four measures covering job security and home values have all fallen back suggests that the slowdown is starting to affect other sectors of the economy, with the housing market in particular looking set for a correction in the face of rising borrowing costs.”
Oil is rallying, with Brent crude up over 1.7% at $124.40 per barrel, and US crude back at $123.
Craig Erlam of OANDA says shortages are supporting energy prices:
Oil prices have steadied in recent days as economic fears and fresh Chinese restrictions have taken the wind out of the sails of the rally.
The market remains extremely tight and further disruptions in Libya, where production has reportedly fallen by more than a million barrels a day since last year, aren’t helping matters.
In New York, Wall Street’s main indexes have opened a little higher, a day after the S&P 500 officially lurched into a bear market.
The Dow Jones Industrial Average, which contains 30 large US companies, has gained 30 points or 0.1% to 30,547 points.
The benchmark S&P 500, which shed almost 4% on Monday, has inched up by 0.15%, from its lowest since March 2021.
The tech-focused Nasdaq Composite has risen by 0.2%, but still down over 30% this year.
Investors may be hunkering down as the Federal Reserve starts its two-day meeting, which could culminate in the largest US interest rate hike in decades.
Fiona Cincotta, senior financial Markets Analyst, at City Index, says:
US stocks are edging cautiously higher, rebounding from yesterday, after softer than forecast PPI data (see earlier post) and as the two-day FOMC meeting is due to kick off.
Stocks dropped sharply yesterday as fears over surging inflation and the Fed acting aggressively to tighten monetary policy, tipping the US into recession, hit stocks hard. High-growth tech stocks bore the brunt of the selloff, closing 4.7% lower.
After inflation shot up to 8.6% in May, the markets re-priced their expectations of a 75 basis point rate hike to it now being fully priced in. The move lifted the USD and hit stocks and gold yesterday.
The pound is racking up further losses today, amid worries about the UK economy, the risk of a trade war with the European Union, and the possibility of a new Scottish independence vote.
Sterling has hits its lowest level against the US dollar since early in the pandemic. It’s down over half a cent at $1.2068, the weakest point in over two years.
The pound has tumbled by one eurocent to €1.155, the lowest since last September.
A weaker currency will push up the cost of imports, such as consumer goods and motor fuel, adding to UK inflation.
This morning’s mixed unemployment data, showing the biggest drop in real wages in at least 20 years and a rising jobless rate, is weighing on the pound.
Yesterday’s GDP report, showing the economy shrank in April, has also cast some doubt over how far, or fast, the Bank of England will need to raise interest rates.
Modupe Adegbembo, G7 Economist at AXA Investment Managers, predicts the Bank will raise interest rates by 25 basis points on Thursday to 1.25%, but pause its hiking cycle once rates have hit 2% in November.
We see the labour market as key to the BoE and suspect that slower growth and a more rapid slackening in labour market could see them pause earlier.
Naeem Aslam of Avatrade says there’s no shortage of self-inflicting injuries hitting the UK currency.
Now that the UK has set a bill to override the Northern Ireland section of the Brexit deal, a trade war could potentially take place between the EU and the UK.
Remember, it took the UK and EU over two years to hammer out the details of the Brexit deal in relation to Northern Ireland, and the fact that UK lawmakers have positioned the country for another self-inflicting injury would mean more trouble for the UK’s economy.
Reuters says the pound struggled after Scotland’s First Minister Nicola Sturgeon said she would share details on plans for a new independence referendum.
“If I were to isolate the (pound) move lower down to one event, I’d most probably say that the Scottish independence risk was the straw that broke the camel’s back,” said Simon Harvey, head of FX analysis at Monex Europe.
“The impact of the announcement by Nicola Sturgeon was inflated by the sheer pressure the pound is under from a multitude of factors”.
Thousands more UK railway workers are to be balloted for strikes in escalating disputes which threaten travel chaos this summer.
The Transport Salaried Staffs Association (TSSA) has served notice to ballot more than 6,000 staff at Network Rail (NR) in a dispute over pay, conditions and job security.
TSSA members at NR work in operational, control, management and safety critical roles on rail services across Britain.
TSSA is demanding a guarantee of no compulsory redundancies for 2022, no unagreed changes to terms and conditions, and a pay increase which reflects the rising cost of living. In the event of a yes vote, strike action could be held from July 25.
TSSA general secretary Manuel Cortes said balloting for industrial action was a last resort, but the union was preparing for all options, including “co-ordinated strike action.”
“We could be seeing a summer of discontent across our railways if Network Rail don’t see sense and come to the table to face the concerns of their staff.
Network Rail staff are asking for basic fair treatment – not to be sacked from their jobs, a fair pay rise in the face of a cost-of-living crisis and no race to the bottom on terms and conditions.
We also have fresh evidence that inflation is still running hot in the United States.
Goods makers and services companies have lifted their prices by 10.8% over the last year, and by 0.8% in May alone.
That shows producers are passing on higher energy costs, raw materials and wages to customers.
It could further spur the US Federal Reserve to lift US interest rates sharply higher tomorrow.
Naeem Aslam, Chief Market Analyst at Avatrade, has some instant reaction:
Another pipping hot reading has increased the pressure on the Fed. Traders must embrace for a more hawkish monetary policy and odds are as high as they can be for an interest rate hike of 75 basis in tomorrow’s meeting.
The dollar index is the dominant force and it is only the safe haven we believe as the US stock market is likely to continue to move lower.
Now the big question….will the travel chaos be fixed in time for the summer holidays?
Robert Courts MP says the government will do its bit….
We will everything that we can, in conjunction with the sector, to make the experience one that is smooth, that is enjoyable, to get people out and about flying.
That’s exactly what we all want to see as a global country.
Q: But why are some airlines, such as BA and easyjet, doing worse than others?
“Without sounding as if I’m on the fence, it’s complicated…”, Courts responds…
“That is the fence, minister,” BEIS chair Darren Jones points out.
And Courts is sticking to it, explaining that airlines work in a complex ecosystem, in which some have different ground handlers, for example.
[reminder: Unite told the committee earlier that BA’s decision to fire and rehire 10,000 workers had led to its problems]
Q: Is Which? right that some airlines are coping much better than others, and what lessons can be learned?
CAA chief Richard Moriaty says some airlines have fared better than others, and agrees with journalist Simon Calder’s list (which had BA and easyJet as the worst for cancellations, and Ryanair and Jet2 as the best).
Moriaty says airlines have got better at making refunds compared with early in the pandemic, and are now automatically reversing payments so people get their cash back for a cancelled flight quickly.
Q: Why didn’t the aviation sector get targeted support, such as a longer furlough scheme, so they could retain staff and bring them back?
Robert Courts explains the government’s policy was to offer support to the whole economy, rather than specific sectors. He says the sector received other help beyond furlough (which ended last September), including business rates relief.
But the best thing the government could do was lift restrictions — which has happened, Courts says.
He adds that ultimately, it’s the airline sector’s responsibility to see how many tickets it’s selling, how many customers it can service, and adjust where necessary.
Courts says he is taking a close interest in this:
Going forward, I will be scrutinising those plans on a very regular basis. Weekly, chaired by myself, and also officials at the same time.
Brexit is not to blame for the UK’s transport chaos, insists Robert Courts, parliamentary Under-Secretary of State for Transport.
Testifying to the BEIS committe, Courts expresses sympathy with the airlines, who he says have been through an extremely difficult since since the pandemic began.
It has been very difficult to know how fast demand would come back, he points out, and therefore to hire enough staff.
Q: We’ve heard that 30% of workers in the industry before Brexit were from the EU. Hasn’t that been a factor?
Courts argues that the travel industry goes beyond the UK – there have been problems in Amsterdam’s Schiphol airport, in Dublin, and in the US.
It’s a wider issue — the reopening of a sector after it closed down, Courts says.
Courts argues that if there were spare airport workers in the EU, who couldn’t be in the UK, then there’s be less disruption at place like Schiphol.
Q: Is there any data to back this up?
Richard Moriarty, chief executive of the Civil Aviation Authority, says that between 2% and 4% of UK flights were cancelled over the half-term/Jubilee week. That’s up from 1% normally, and “clearly distressing, and clearly unacceptable”.
But other countries saw similar high cancellation rate that week — 3% in France, and 11% in the Netherlands, Moriarty says.