Pound slumps after shock GDP fall – live updates

The competition watchdog has secured commitments from P&O Ferries and DFDS to address concerns over their ferry capacity sharing deal.

The two firms operate a capacity sharing agreement that provides a ‘turn up and go’  system for freight customers at Calais and Dover, allowing them to take the next available ferry regardless of which operator they booked with.

The Competition and Markets Authority said that while the deal offered flexibility, it could lead to higher prices and fewer sailings.

As a result, P&O and DFDS have committed not to agree with each other on the number of sailings each company operates and to put strict limits on the numbers of sailings they can cancel.

They will also amend the agreement to make it clear that it doesn’t fix the amount of freight customers either company may carry.

The CMA will consult on the commitments, providing third parties the opportunity to comment by July 4.

Things have gone from bad to worse for the FTSE 100 after April’s shock decline in GDP.

The blue-chip index has extended losses to drop 1.7pc, while the mid-cap FTSE 250 crashed 2.3pc. Both are at their lowest since May 12 and on track for a fifth day of losses.

The latest stats showing GDP fell 0.3pc in April marked the latest glum economic news to rattle markets. On Friday US inflation jumped unexpectedly to a 40-year high, raising fears that price rises could last longer than first thought.

Traders will now have a close eye on the Bank of England ahead of its meeting later this week. The MPC is expected to lift interest rates by 25 basis points to 1.25pc. A larger increase would likely fuel recession fears.

Capping off the misery, the pound has dropped 0.7pc against the dollar to $1.2221 as the outlook for the economy darkens.

Boris Johnson has blamed April’s lacklustre economic data on an “inflationary price bump” that he insisted the UK will “get through very strongly indeed”.

Emphasising that the UK had the fastest growth of the G7 last year, the Prime Minister said: “It’s true that other countries are now catching up and we’re seeing the effects of inflation around the world hitting this country as well as everywhere else.

“But if you look for instance at the the IMF data, the UK comes back at or near the top of the of the G7 league very quickly.”

Speaking at Southern England Farms in Cornwall, Mr Johnson emphasised the “very strong” fundamentals and low unemployment, pointing to the vegetable grower’s search for more pickers.

“That’s so different from the economic crises I remember when I was younger in the 80s, in the 90s, millions of people… told they were on the scrap heap because of mass unemployment.

“That was a total disaster, we’re in a different situation now, we’ve got an inflationary price bump that we got to get through… I think we’ll get through it very strongly indeed.”

A shorter week with no loss of pay seemed like a great idea during the strains of lockdown, when Samantha Losey was working “soul-destroying” 80-hour weeks. 

But after her communications company Unity was picked out of 500 applicants to join the world’s biggest four-day working week pilot, which kicked off last Monday, the managing director began to get cold feet. The agency had just had an influx of new clients, and Losey felt this might not be the best time to test out such a radical idea after all.

Claims of elitism and logistical issues loom over companies trialling a four-day working week, writes Lucy Burton. Read her full story here.

Petrol prices have reached another record high, but there’s a glimmer of hope as wholesale prices continue to ease.

The average pump price for petrol reached 185.04p yesterday, marking an increase of more than 7pc in just a week. Diesel fell back slightly to 190.92p a litre after hitting a new record of 191.03p on Saturday, according to the AA.

It’s the latest blow for motorists, with the cost of filing up an average family car now well over £100.

However, the wholesale price for petrol heading to forecourts has now been lower than its pre-Jubilee peak for more than 10 days.

This could spell some relief for motorists, although calls are growing for the Government to intervene with fuel duty of VAT cuts.

Luke Bosdet at the AA said:

Petrol price rises should be grinding to a halt, at least temporarily, by the end of the week. There may still be some forecourts yet to pass on the recent surge in costs.

If they continue to go up substantially afterwards, we will be intrigued to hear what excuses the fuel trade has this time.

If prices keep going up, they will give the Government further justification in its call to the Competition and Markets Authority for an investigation.

Smurfit Kappa has resumed some operations after a huge fire tore through its packaging plant in Birmingham.

West Midlands Fire Service said more than 100 firefighters from across the region had made progress containing the blaze, which began last night.

The fire was declared a major incident after 8,000 tonnes of compressed cardboard caught fire. Pictures and drone footage posted by the fire service online showed bales of cardboard on fire across a large area of the site.

Smurfit Kappa’s Birmingham plant is one of two paper mills it operates in the UK and it produces 500-700 tonnes of packaging paper every day, which is later converted into cardboard boxes.

Go-Ahead isn’t the only company at the centre of takeover buzz this morning – Countryside Properties has put itself up for sale after coming up pressure from shareholders.

It comes after the FTSE 250 housebuilder rejected two unsolicited offers from Inclusive Capital, saying they undervalued the company.

Countryside said it had “received feedback from a number of significant shareholders regarding the future of the company” since those offers were made.

It added: “A meaningful number of shareholders believe that the company would be in a better position to capitalise on the opportunities ahead as a privately owned company or as part of a larger business and have asked the board to actively seek offers for the company.”

Activist investor Browning West – Countryside’s largest shareholder – began building a stake in 2020 and has led calls for a breakup of the business, including a sale of its private housebuilding unit, leaving it to focus on its partnerships with affordable housing providers.

It called on the company to find a buyer earlier this month and argued Inclusive Capital should be included in the sales process. 

Shares in Go-Ahead surged in early trading after the transport giant revealed it’s received two unsolicited takeover bids.

The FTSE 250 company, which runs the Govia Thameslink franchise, said it had received approaches from Australian rival Kelsian Group and a consortium consisting of Kinetic and Globalvia Inversiones.

Go-Ahead said the two suitors had made revised bids, both of which the board would be minded to recommend if firm offers were made. Shares jumped almost 18pc.

Go-Ahead has been tipped as a takeover target since it was stripped of the Southeastern rail franchise following a scandal over failing to repay taxpayer cash, sparking a £100m drop in its value.

Under takeover rules, both Kelsian and the consortium have until 5pm on July 11 to either announce a firm intention to make an offer or withdraw their interest.

Read more: Rail scandal leaves Go-Ahead a ‘sitting duck’ for takeover

A lethal combination of rising prices and slowing economic growth is being felt around the globe – not least in Japan.

The yen has crashed to its lowest level in 24 years as its central bank continues to hold fire on raising interest rates, despite tightening of monetary policy elsewhere.

The currency fell more than 0.5pc to 135.19 per dollar this morning – its weakest since October 1998 – after Friday’s shock US inflation figures.

This prompted Bank of Japan Governor Haruhiko Kuroda to deliver his clearest warning yet that the impact of rapid slides in the currency was damaging for the economy.

The yen has dropped almost 15pc this year, making it the worst performing major currency. The BOJ has kept rates anchored to boost a sluggish economy, and is set to maintain its loose monetary policy stance at its meeting later this week.

The City watchdog has put Credit Suisse on a watchlist of institutions requiring tougher supervision following a string of scandals at the Swiss bank.

The Financial Conduct Authority said it was taking the step last month because the lender hadn’t done enough to improve its culture, governance and risk controls.

In a letter, seen by the Financial Times, regulators asked bank management to provide evidence of the steps it would take to prevent misconduct and improve accountability.

The FCA also urged the bank to address “persistent” cultural issues, including a lack of internal challenges to risky transactions and said they had not yet seen “sufficient evidence of effective remediation”.

It follows a string of scandals at Credit Suisse, including the collapses of Greensill Capital and Archegos. Last week the bank said it would ramp up cost-cutting measures after issuing its third profit warning since January.

It’s also a grim start to the week for cryptocurrencies as investor jitters spread through risk assets.

Bitcoin plunged to its lowest level in around 18 months in overnight trading after Friday’s shock US inflation data continued to take its toll.

The world’s largest digital token dropped as much as 8.9pc to $24,903.49 – its lowest since December 2020. Other cryptocurrencies also fell, with Ether down as much as 12pc to its lowest level since February 2021.

Crypto assets have been hit particularly hard by the Federal Reserve’s aggressive shift to tackle surging inflation.  

The collapse of the Terra/Luna ecosystem last month – and lender Celsius’ move to pause withdrawals of coins this morning – have further eroded confidence in the space.

UK shares have tumbled to their lowest levels in more than three weeks as this morning’s GDP figures dented sentiment even further.

The FTSE 100 dropped 0.9pc in early trading, with investors fretting about a possible recession ahead of the Bank of England’s interest rate decision later this week. The domestically-focused FTSE 250 tumbled 1.7pc.

Oil majors BP and Shell were the biggest drag on the blue-chip index, falling 2pc and 1.9pc respectively. Miners including Glencore, Rio Tinto and Anglo American also slid into the red as commodity prices fell on global growth fears.

Financial stocks including HSBC and Standard Chartered were among the few risers, with expectations of higher interest rates offsetting worries about a recession.

Barret Kupelian, senior economist at PwC, says the economy is now feeling the impact of the Ukraine war and surging prices.

UK economic output has now reverted to levels last seen in November 2021 and is around 0.9pc higher than pre-pandemic levels, compared to 1.3pc higher earlier this year. For businesses this means the economic environment is even more challenging as they will have to fight over a smaller pie to grow their revenues.

The economic data is now rapidly catching up with the cocktail of challenges businesses and consumers are facing, namely the war in Ukraine, high food and energy inflation and potential for further supply chain disruptions over trade tensions with the EU. 

We continue to expect the UK economy to grow by an average of 2-3pc this year. However, this projection is artificially inflated by the poor performance of the economy in the beginning of last year. For most people the economic outlook will feel stagnant in the coming few months.

Kitty Ussher, chief economist at the Institute of Directors, strikes a more upbeat tone about the latest GDP figures, saying there’s some cause for hope for businesses.

Although this headline figure is lower than expected, April’s economic contraction is entirely due to the scaling back of the government’s Test and Trace activity. If that effect is removed the economy would have grown.

In particular, business will take reassurance from the strong performance in retail sales and consumer-facing services in April following a wobble in March. Although headline consumer confidence remains low it seems many people are nevertheless keen to go out and enjoy their post pandemic freedoms.

Business leaders will now be looking to the Bank of England to demonstrate a clear resolve to bring inflation back down when it meets on Thursday, so that they can start to plan for the future with greater confidence.

The FTSE 100 has dropped sharply at the open after the latest figures showed a shock decline in GDP in April.

The blue-chip index fell 0.8pc to 7,257 points.

FX analyst Viraj Patel reckons this could be a watershed moment for the Bank of England.

With the UK economy facing a recession, aggressive interest rate rises are looking less and less likely.

Mr Patel thinks rates won’t rise past 1.5pc (they’re currently at 1pc) and predicts the MPC will soon be talking about cutting rates, not increasing them.

It’s a torrid start to the day for sterling, which is feeling the impact of those disappointing GDP figures.

The pound has dropped 0.5pc against the dollar to $1.2255 – its lowest level in a month. Against the euro it’s wiped out its gains, slipping 0.1pc to 85.49p.

Paul Dales, chief UK economist at Capital Economics, says the winding down of the Covid test and trace programme is the biggest factor behind April’s shock GDP decline:

The 0.3pc fall in GDP in April isn’t as weak as it looks, but nonetheless increases the chances that the Bank of England opts for a 25bps rise in interest rates on Thursday rather than the 50bps hike we are forecasting.

The decline in GDP was the second in as many months and was bigger than the 0.1pc drop in March. It means that GDP would need to rise by 0.4pc or 0.5pc in both May and June to prevent GDP from contracting in the second quarter as whole.

That said, without the joint wind down of the Covid-19 NHS Test & Trace and vaccination programmes GDP would have risen. Those programmes subtracted 0.5 percentage points from GDP growth and without them (and after rounding) GDP would have increased by 0.1pc. That’s hardly strong, but it suggests the underlying momentum isn’t as weak as the headline figure implies.

Samuel Tombs at Pantheon Macroeconomics reminds us that the Bank of England forecast a 0.1pc rise in GDP in the second quarter.

With a monthly fall of 0.3pc in April and worse to come due to the extended bank holiday celebrations, these predictions are looking way off.

Mr Tombs also says this rules out a 50 basis point rise in interest rates from the Bank of England this week. Markets are expecting a 25 basis point rise to 1.25pc.

Yael Selfin, chief economist at KPMG UK, warns that the economy is likely to keep on shrinking.

The overall outlook remains downbeat as the squeeze on consumer income is expected to weaken demand, and external headwinds intensify due to the deteriorating outlook among the UK’s main trading partners.

The rest of the second quarter could see an additional fall in GDP owing to the weakening momentum and the impact of the extended bank holiday.

David Bharier at the British Chambers of Commerce says the combination of rising prices and higher taxes was particularly painful.

Businesses from all sectors are facing unprecedented rises in raw material costs, soaring energy bills, and wage pressures.

The introduction of an increase to employer National Insurance Contributions in April has only further added to firms’ woes.

Chancellor Rishi Sunak has issued his response to the latest GDP figures, and is pointing the finger firmly at global economic forces…

Countries around the world are seeing slowing growth, and the UK is not immune from these challenges.

I want to reassure people, we’re fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they’re facing.

Britain took a step closer to recession in April as GDP suffered a surprise drop of 0.3pc in the month, writes my colleague Tim Wallace.

It follows March’s 0.1pc drop and raises concerns the recovery from Covid has given way to stagflation amid rises in prices at a pace not seen for 40 years.

All major sectors of the economy shrank in the month, the Office for National Statistics said, with services down 0.3pc, manufacturing output falling 1pc and construction shrinking by 0.4pc.

This made it the most widespread contraction in the economy since the lockdown of January 2021.

The economy has been particularly reliant on health spending since the pandemic began, with changes in the way GPs operate, the rollout of vaccines and the funding of free Covid tests all significant contributors to GDP in recent quarters.

But much of that support is fading away with the end of the pandemic, just as supply chain problems intensify due to the war in Ukraine, and the cost of living crisis undermines households’ spending power.

Businesses reported widespread pressures from energy bills and transport costs, as well as higher costs of materials they needed, from metals and chemicals to fertiliser and animal feed.

Overall the fall in GDP means the economy is now 0.9pc above its level in February 2020, just before the pandemic began.

Darren Morgan at the ONS said:

A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.

Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.

These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.

Good morning.

We start the week with more dire economic data, as the UK economy posted a bigger-than-expected decline for April.

GDP shrank 0.3pc over the month. This outstripped economists’ forecasts and followed a 0.1pc decline in March.

The figures reflect the impact of the 54pc jump in energy prices in April, which exacerbated the cost-of-living crisis for British households as inflation spirals.

All eyes will be on the Bank of England, which will this week announce its decision on interest rates as it grapples with surging prices and a slowing economy.

5 things to start your day 

1) Ad boycott is undermining GB News and free speech, says boss – Angelos Frangopoulos says advertising snub is ‘dangerous for public debate’

2) UK staff try to boost productivity – by working a four-day week – Claims of elitism and logistical issues loom over companies trialling fewer hours

3) Working from home revolution leaves ‘permanently scarred’ high streets – Footfall expected to remain 10pc lower than it was before the pandemic

4) The serial entrepreneur who took a wrong turn on the second-hand car boom – Alex Chesterman, founder of Zoopla and LoveFilm, battles to arrest Cazoo’s slide

5) Wall Street giants resist EU’s bid to siphon City jobs – US finance chiefs to voice concerns over Brussels’ drive to move bankers out of London

What happened overnight 

Markets tumbled in Asia on Monday and the dollar rallied as part of a global rout fuelled by a forecast-beating US inflation print that ramped up bets on a more aggressive campaign of Federal Reserve interest rate hikes. 

Asia followed suit, with Hong Kong, Tokyo, Seoul, Taipei and Wellington off more than two percent, while Shanghai, Singapore, Manila and Jakarta fared almost as badly.

Coming up today

• Corporate:  Molten Ventures, Sirius Real Estate (full-year results)
• Economics: GDP, industrial production, manufacturing production, trade balance (UK)