UK economy starts Q4 on weak note as Brexit hits orders

Britain had been due to leave the European Union on Oct. 31 which prompted limited stockpiling by businesses and households. (AFP)
Updated 05 November 2019

UK economy starts Q4 on weak note as Brexit hits orders

  • Britain had been due to leave the European Union on Oct. 31 which prompted limited stockpiling by businesses and households
  • But Brexit has now been delayed until Jan. 31, 2020

LONDON: Britain’s economy got off to a weak start to the final quarter of 2019, according to surveys which showed the giant services sector stagnated last month, with concerns about Brexit depressing new orders, while consumers stayed cautious.
Britain had been due to leave the European Union on Oct. 31 which prompted limited stockpiling by businesses and households.
But Brexit has now been delayed until Jan. 31, with an election on Dec. 12 raising further uncertainty.
The IHS Markit services Purchasing Managers’ Index (PMI) edged up to 50.0 — which represents zero growth — from 49.5 in September, which was one of the lowest readings since Britain was last in recession in 2009.
The all-sector PMI, covering manufacturing and construction as well as services, remained below 50 for a third month in a row, the first time this has happened since 2009.
“The underlying business trend remains one of stagnation at best,” IHS Markit economist Chris Williamson said.
October’s PMI readings on their own were consistent with a 0.1 percent quarterly fall in overall economic output, Markit said.
Britain’s economy has lost momentum this year, hurt by a global downturn due to the US-China trade war as well as increased Brexit uncertainty.
In the euro zone, the manufacturing PMI contracted even more sharply than in Britain, reflecting the bloc’s greater reliance on exports to China.
British consumer spending has been more resilient than business investment, but surveys on Tuesday showed a slowdown here too.
The British Retail Consortium said high street spending rose 0.6 percent in October, the most since April. But on a rolling basis sales have grown by an average of just 0.1 percent over the past 12 months, the lowest on record.
Barclaycard data showed spending growth slowed to 1.5 percent from 1.6 percent last month, and the Society of Motor Manufacturers and Traders reported a 7 percent annual fall in new car sales.
A brighter note came from a survey by HSBC which, in contrast to most others, showed businesses were cheerier about export prospects than a year ago.
Businesses have struggled to plan around deadlines for leaving the EU that have changed three times this year, leading to volatility in official figures that has not always been tracked by the PMI.
Official data showed the economy shrank by 0.2 percent in the three months to June as businesses dealt with an overhang of raw materials bought before the original March 29 Brexit deadline.
Most economists expect a limited rebound in the third quarter, meaning Britain would dodge a recession.
But the overall picture is muted, with Morgan Stanley — one of the gloomier forecasters — predicting growth of just 0.2 percent in the third quarter and stagnation in the fourth.
The Bank of England is due to update its growth forecasts on Thursday but economists polled by Reuters do not expect any change in interest rates ahead of December’s election.
The opposition Labour Party plans to renegotiate Brexit and put the revised deal to a referendum. It also promises a significantly more interventionist approach to the economy.
For now, businesses surveyed by IHS Markit say Brexit worries are reducing orders, which fell in October by their most in six months for services businesses. On the all-sector measure, orders fell at the third-fastest rate since 2009.


Egypt’s sovereign wealth fund to raise authorized capital five-fold up to $62.15 billion

Updated 12 November 2019

Egypt’s sovereign wealth fund to raise authorized capital five-fold up to $62.15 billion

  • Egypt’s parliament passed a law allotting 5 billion Egyptian pounds of start-up capital for the fund last year
  • Abdel-Fattah El-Sisi: Egypt could dramatically expand the size of its new sovereign wealth fund to ‘more than several trillion pounds’

CAIRO: Egypt’s sovereign wealth fund is expected to increase its authorized capital to up to a trillion Egyptian pounds ($62.15 billion) from 200 billion pounds within three years, depending on investors’ appetite, the fund’s executive director said.
Last year, Egypt’s parliament passed a law allotting 5 billion Egyptian pounds of start-up capital for the fund, called the Egypt Fund, with 1 billion pounds to be transferred immediately from the treasury.
The law also allows the president, who picks the board of directors, to transfer the ownership of any unused state assists to the fund or to any of the fund’s assists or companies.
“We expect to increase our licensed capital within three years to a trillion pounds or less ... it all depends on the investors’ response and investment appetite,” said Ayman Soliman, the fund’s chief executive.
“The sectors we will work in include industry, traditional and renewable energy, tourism and archaeology,” Soliman said.
President Abdel-Fattah El-Sisi said last month that Egypt could dramatically expand the size of its new sovereign wealth fund to “more than several trillion pounds,” and that it “aims to contribute to sustainable economic development through management of its funds and assets.”
The fund plans to buy a stake of about 30 percent in power plants built by Siemens, Soliman said, adding that six international investors have expressed interest.
“So far, six companies submitted offers to the Electricity Holding company to buy shares in the Siemens power plant,” Soliman said.
The plants, billed at the time as the world’s biggest, were built by Siemens in a €6 billion ($6.61 billion) deal signed in 2015. El-Sisi inaugurated them last year.
In May, Electricity Minister Mohamed Shaker said that the government is considering selling the power plants to private investors, but talks were still at an early stage.