UK manufacturers cut jobs at fastest rate since 2012: PMI

The British manufacturing sector was hard hit due to concerns about disruption to supply chains after the UK’s decision to leave the European Union. (AFP)
Updated 02 December 2019

UK manufacturers cut jobs at fastest rate since 2012: PMI

  • Britain’s economy has slowed since the referendum decision in June 2016 to leave the European Union
  • Manufacturing was especially hard hit due to concerns about disruption to supply chains

LONDON: British manufacturers cut jobs last month at the fastest rate since 2012, a survey showed on Monday, as pressures from Brexit and a global trade slowdown caused the sector’s longest decline since the financial crisis.
The IHS Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) sank to 48.9 in November from 49.6 in October, a slightly smaller decline than an initial flash estimate of 48.3.
But the PMI stuck below the 50 level that divides growth from contraction for a seventh consecutive month, the longest such run since 2009, as the country headed for an early election on Dec. 12 intended to end a parliamentary logjam over Brexit.
“November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election,” IHS Markit economist Rob Dobson said.
Britain’s economy has slowed since the referendum decision in June 2016 to leave the European Union, with manufacturing especially hard hit due to concerns about disruption to supply chains, on top of pressures from the US-China trade war.
Britain faced the risk of leaving the EU without a transition deal on Oct. 31, prompting many manufacturers to build up emergency stocks of raw materials, before a last-minute delay until Jan. 31.
In November, factories reduced stocks at the fastest rate since June 2018, weighing on overall demand, the PMI showed.
The PMI’s employment component sank to 46.8 from 47.1, representing the biggest loss of jobs since 2012, though less of a fall than in the flash estimate.
Although the unemployment rate is its lowest since 1975, official figures have shown that British employers in the third quarter cut jobs by the most for any quarter in the past four years. Monday’s data suggest this risks continuing.
Manufacturing makes up around 10 percent of Britain’s economy. In the third quarter output in the sector fell by 1.4 percent from a year earlier, while growth in the economy as a whole slowed to 1.0 percent, its weakest since 2010.
Earlier on Monday, the Confederation of British Industry forecast economic growth of 1.2 percent for 2020 and 1.8 percent in 2021, assuming Britain leaves the EU with a Brexit transition deal on Jan. 31 and then strikes a deal to preserve tariff-free trade.
Trade association Make UK cut its forecast for manufacturing growth to 0.1 percent for 2019 and 0.3 percent for 2020, down from a previous forecast of 0.6 percent.


S&P cuts Australia’s sovereign outlook, affirms AAA rating

Updated 08 April 2020

S&P cuts Australia’s sovereign outlook, affirms AAA rating

  • S&P affirmed Australia’s prized rating but said a downgrade was possible within the next two years
  • Australian long-dated bonds sold off after S&P’s outlook downgrade

SYDNEY: Global ratings agency S&P on Wednesday lowered its outlook on Australia’s coveted ‘AAA’ rating to “negative” from “stable” in anticipation of a “material” weakening in the government’s debt position as it splashes out a large fiscal stimulus package.
S&P affirmed Australia’s prized rating but said a downgrade was possible within the next two years if the economic damage from the COVID-19 outbreak is more severe or prolonged than it currently expects.
Australia is among a handful of countries in the world to boast the best ranking from all three major ratings agencies.
But it has come under a cloud as the pandemic has dealt Australia a severe economic and fiscal shock, with S&P predicting the A$2 trillion ($1.23 trillion) economy would plunge into recession for the first time in nearly 30 years.
This would cause a “substantial deterioration of the government’s fiscal headroom at the ‘AAA’ rating level,” S&P said in a statement.
Treasurer Josh Frydenberg said the outlook downgrade was “a reminder of the importance of maintaining our commitment to medium term fiscal sustainability.”
The government has pledged A$320 billion ($197.73 billion) in fiscal spending, or 16.4 percent of annual economic output, to backstop the economy and prevent a crisis as the pandemic shuts companies and leaves many unemployed.
Some fund managers said Wednesday’s outlook downgrade was unlikely to raise the government’s borrowing costs by much though it could hurt Australian companies whose ratings are dependent on the sovereign rating.
“A large proportion of credit funds are mandated to maintain funds in a specific ratings bucket,” said Asmita Kulkarni, Director Investment Strategy at FIIG.
“With potential widespread downgrades we could see funds being forced to sell-down investment which would result in a widening of credit spreads.”
Australian long-dated bonds sold off after S&P’s outlook downgrade with 10-year yields jumping to 0.967 percent from 0.909 percent at Tuesday’s close.
Economists said they do not expect a rating downgrade prior to the federal budget due on Oct. 6.
It was only in September 2018 that S&P upgraded Australia’s outlook to “stable” from “negative” as the budget came close to balance. The government had even projected a surplus for the current fiscal year and next.
While all those predictions are now under water, Australia’s public debt is still in good shape, S&P noted.
“While fiscal stimulus measures will soften the blow presented by the COVID-19 outbreak and weigh heavily on public finances in the immediate future, they won’t structurally weaken Australia’s fiscal position,” S&P said.
“This expected improvement is a key supporting factor of our ‘AAA’ rating.”