Eurozone business activity grows at fastest rate in a year; UK service sector loses momentum as price pressures cool

Eurozone activity grows at fastest rate in a year as inflation cools

Business activity the eurozone as a whole grew at the fastest rate in a year, while inflation cooled — welcome news for the European Central Bank, which meets tomorrow and is widely expected to cut interest rates by a quarter point.

The latest HCOB PMI data compiled by S&P Global showed the headline business activity index climbed to a one-year high of 52.2 in May from 51.7 in April.

Of the top four economies, France was the outlier in May as a slight contraction in private sector activity contrasted with growth in Germany, Spain and Italy. Spain’s position as the top performer was solidified as economic growth here was sharp, quickening to a 14-month high.

The bloc’s largest economy, Germany, also registered a marked upturn, with output volumes rising at the fastest pace for a year. On the other hand, Italy’s expansion lost momentum, cooling to its weakest since February.

Stronger demand was a key reason behind May’s upturn in business output across the euro area. Total new order intakes rose for a second month in a row and at the fastest rate since April 2023.

There was a further pickup in demand for services, while the downturn in factory orders cooled markedly from the previous month. The survey indicated that improved sales performances were restricted to domestic markets, as new business received from abroad declined, in line with the trend since March 2022.

Prices gauges signalled cooling inflationary pressures across the eurozone half way through the second quarter. However, the increase in input costs remained sharp and well above its pre-pandemic average. It was a similar picture for output prices where the selling price increases eased to a six-month low, but remained considerably steeper than seen on average prior to 2020. Manufacturers continued to see reductions in both pricing measures, whereas services companies registered historically sharp rises.

People dining alfresco on Plaza Reial in Barcelona. Photograph: Kevin Foy/Alamy

Key events

Asda now the most expensive UK supermarket to buy fuel

Asda is now the UK’s most expensive supermarket fuel seller, research shows, after the retailer’s private owners ditched its long-held pledge to be the cheapest on the market.

The retailer, which was bought by the billionaire Issa brothers and their private equity partner TDR Capital in 2021, charged an average 2.1p a litre more for unleaded petrol than rivals Tesco, Sainsbury’s and Morrisons at the end of May, according to an analysis by the RAC motoring organisation.

The difference in average diesel prices was even steeper, at 2.5p a litre, according to the study using data gathered by the Competition and Markets Authority (CMA) which has been closely monitoring fuel prices in an effort to ensure motorists are not being ripped off.

The Issa brothers made their fortune from petrol forecourts. After acquiring Asda they folded part of their forecourts business, EG Group, into the supermarket chain. At the time of the deal in May 2023, Mohsin Issa said it would enable him to offer “Asda’s highly competitive fuel” to more customers.

An Asda petrol station in Aintree, Liverpool. Photograph: Peter Byrne/PA

UK energy firms delay start of North Sea oil production

Three British energy companies have decided to delay by a year the planned start of oil production at their joint-venture oilfield in the North Sea –– citing the need for clarity on the next government’s policies.

Jersey Oil & Gas, which owns 20% of the Buchan field 120 miles northeast of Aberdeen, announced this today on behalf of the joint venture partners, among them Serica Energy and NEO Energy.

Shares in Jersey slid more than 16% and Serica’s shares dipped nearly 1% on the news.

Many North Sea oil and gas producers have been merging, shifting overseas, or cutting investment, after the UK government’s windfall tax slashed profits and the opposition Labour Party threatened more tax if it wins the next general election on 4 July.

When Serica bought its 30% stake in the Buchan field from Jersey in February, the target for the start of oil production was the fourth quarter of 2026. That target has now moved to late 2027.

Jersey said the Buchan Field Development Plan was on course for end-2024 approval. But it added:

The exact timing for achieving this key milestone and enabling project sanction is naturally linked to securing fiscal clarity from the next government and ensuring that the project remains financially attractive.

The Labour Party, which has a strong lead in the polls, has vowed to raise the windfall tax by 3% to help fund its energy transition strategy, which the North Sea oil industry has complained would further deter investment.

Brendan Long, an analyst at the wealth manager WH Ireland, said:

We anticipate the UK government will provide fiscal clarity such that the operator of the Buchan redevelopment will have sufficient confidence in the fiscal regime to progress with project sanction.

It is the best undeveloped oilfield of its kind in the UK North Sea in terms of scale and low risk, he added.

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Mike Hawes, the SMMT’s chief executive, said:

As Britain prepares for next month’s general election, the new car market continues to hold steady as large fleets sustain growth, offsetting weakened private retail demand. Consumers enjoy a plethora of new electric models and some very attractive offers, but manufacturers can’t sustain this scale of support on their own indefinitely. Their success so far should be a signpost for the next government that a faster and fairer transition requires carrots, not just sticks.

An electric vehicle charging station at Skelton Lake Service Station in Leeds. Photograph: Danny Lawson/PA

UK new car market grows, best May since 2021

In other UK news, the new car market held steady last month with company fleets driving growth.

New car registrations rose 1.7% in May, according to the industry body, the Society of Motor Manufacturers and Traders (SMMT). With 147,678 vehicles reaching the road, it was the best May market performance since 2021, although it remains down 19.6% on 2019, before the Covid pandemic.

Fleets and businesses continued to fuel market growth, up 14% and 9.5% respectively, narrowly offsetting a 12.9% decline in uptake from individual buyers.

While deliveries of both petrol and diesel cars fell, demand for electrified vehicles rose, with plug-in hybrids recording the highest growth, up 31.5% to reach an 8% market share. Sales of hybrids rose by 9.6%, maintaining their status as the third most popular fuel type after petrol and battery electric, at 13.2% of the market.

Nick Williams, transport managing director at Lloyds Banking Group, said:

Despite a challenging start to the year for consumers and businesses alike, it’s heartening to see electric vehicle sales continue to increase. That’s feeding through to confidence with those we speak to, which in turn will fuel investment in new models and spur sales further.

Consistency will be key to maintaining that long term confidence and helping the market grow. As it does, momentum will pick up and the second-hand market will entice yet more people to make the leap.

With consumer trust and confidence low, which is affecting retail registrations, it’s time to bust the myths surrounding electric vehicles. As an industry, we need to come together to ensure drivers are informed of the cost saving of driving and charging electric vehicles.

UK services lose momentum, price pressures cool

By contrast, the UK services sector lost some momentum in May, as business activity and new orders eased from 11-month highs in April. That said, job growth and business confidence improved slightly.

On a brighter note, there was a substantial cooling in the rate of firm’s input cost inflation, which fell to its weakest since February 2021. This fed through to prices charged by businesses, which rose at the slowest rate in more than three years.

The closely watched S&P Global UK services PMI business activity index fell to 52.9 last month from April’s 11-month high of 55, indicating a softer rate of expansion that was also the slowest since November last year.

Joe Hayes, principal economist at S&P Global Market Intelligence, which compiles the survey, said:

The PMI survey for May showed another reasonable rate of expansion in the UK service sector. Taken in tandem with our earlier-released manufacturing survey, the PMIs imply GDP growth of around 0.3% so far in the second quarter.

Of particular interest to the immediate outlook for the UK economy will be the prices measures, with the Bank of England potentially moving to cut interest rates as soon as this month. The PMI surveys show prices for UK services rising at the slowest pace for over three years. That’s now three months on the trot that selling price inflation in the service sector has eased – this will be very encouraging to the Monetary Policy Committee and suggests the trajectory of services prices is moving in the right direction.

It is worth noting however that the PMI’s gauge of UK services inflation is still sitting well above its pre-pandemic trend, which may give more weight to those suggesting the Bank of England hold out until August to loosen policy.

LDW Hair Salon in Stoke-on-Trent. Photograph: Nathan Stirk/Getty Images

Eurozone activity grows at fastest rate in a year as inflation cools

The latest HCOB PMI data compiled by S&P Global showed the headline business activity index climbed to a one-year high of 52.2 in May from 51.7 in April.

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Stronger demand was a key reason behind May’s upturn in business output across the euro area. Total new order intakes rose for a second month in a row and at the fastest rate since April 2023.

People dining alfresco on Plaza Reial in Barcelona. Photograph: Kevin Foy/Alamy

French services suffer setback in May

Unlike its neighbours, France’s services sector suffered a slight setback. After rising in April for the first time in nearly a year, activity levels shrank slightly in May. That said, there was a sustained pick-up in sales, driven by domestic demand, while employment continued to rise.

The headline France services PMI business activity index fell from 51.3 in April to 49.3 last month.

Inflationary pressured cooled across France, with rates of increase in input costs and output charges the weakest since July and May of 2021 respectively.

Norman Liebke, economist at Hamburg at Hamburg Commercial Bank, said:

The latest HCOB PMI figures are giving mixed messages about the state of the French services sector. Although business activity declined slightly in May, overall demand grew for the second month in a row. Additionally, although at a slower pace, employment improved for another month, showing robust expectations about the future.

Services inflation slowed in May, but stayed fairly elevated. For input prices, the increase can be attributed to higher salaries and greater supplier charges. Wages remain a risk for the ECB due to the possibility of a resurge in consumer price inflation. Service providers managed to pass on higher costs to customers, but only partially, as evidenced by the output prices index signalling only a marginal rate of increase.

German services growth hits 12-month high, inflation eases

In Germany, Europe’s biggest economy, service sector growth picked up to a 12-month high in May. The services PMI headline index climbed from April’s 53.2 to 54.2, further above the 50 no change threshold for the third month running.

Firms stepped up hiring, and inflationary pressures in the economy’s largest sector eased. Although still above their long-run averages, the rates of increase in both input costs and output prices were the weakest for three years.

Cyrus de la Rubia, chief Economist at Hamburg Commercial Bank, which produces the survey, said:

Things are looking up. The mood in the German service sector is improving month by month. There’s growing hope that the German economy is not the sick man of Europe after all. In fact, Germany is no longer lagging behind other countries and has passed this baton to France, where the service sector has slipped back into recession.

Meanwhile, Germany’s service sector has caught up with Italy’s and almost also to Spain’s, whose business activities have been rising since the beginning of the year and last autumn, respectively. A well-performing tourism sector likely plays a crucial role in this upswing.

Italy also showed a sustained upturn in its services sector last month. Growth was maintained for both new business and activity, but at slightly slower rates. Optimism among service providers also held up, as business expectations were their most upbeat for 27 months and job creation gained momentum.

The headline index from the report slipped slightly to 54.2 in May from 54.3 in April.

Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank, which releases the survey, said:

The service sector is showing resilience. The promising outlook, with growing orders both domestically and internationally, is reflected in increased hiring. What’s encouraging about the employment figure is that respondents noted that many new hires were on permanent contracts.

A major downside of the survey is the continued sharp rise in input prices. Panellists have reported higher costs for personnel, energy, and utilities. The only silver lining is that they can pass on at least some of the price growth to consumers due to improved demand conditions.

Spain’s services sector showed the steepest rise in activity for more than a year in May, according to a survey.

Confidence in the future strengthened to a level that matched February’s two-year high. However, cost pressures intensified noticeably, with input prices rising faster than their historical trend as firms spent more on salaries.

The headline index from the HCOB services PMI (purchasing managers’ index) survey rose to 56.99 in May from from 56.2 April, better than expected and the strongest growth since April 2023.

TikTok says cyber attack targeted celebrities and brands

Jack Simpson

TikTok has said it is taking measures to tackle a cyber attack that targeted several celebrities and brand accounts, including Paris Hilton and CNN.

The social media app confirmed that CNN’s feed was one of a small number of “high profile” accounts that had been affected after its security team was alerted to malicious actors targeting the US news outlet. A TikTok spokesperson said:

We have been collaborating closely with CNN to restore account access and implement enhanced security measures to safeguard their account moving forward.

TikTok also said that the account of reality TV star Paris Hilton was targeted but not compromised.

The icon of the video sharing TikTok app on a smartphone. Photograph: Matt Slocum/AP

The social media company told the Associated Press that the attack took place through the platform’s direct messaging feature but would not give any more details. It is still investigating the what happened and working with affected account owners who need their access restored.

The news of the hack comes as the app, which is owned by Chinese tech firm Byte Dance, is under scrutiny in the US over concerns over whether it poses a national security threat.

Joe Biden signed legislation in April that would see the app banned across the country unless ByteDance can sell it to a non-Chinese entity by mid-January next year.

TikTok, which has around 170 million users in the US, revealed last month that it was taking legal action to block the law, arguing it was unconstitutional and violated free speech.

Introduction: Banknotes featuring King Charles enter circulation; Indian stocks recover after election selloff

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

New banknotes featuring a portrait of King Charles III have entered circulation today, nearly two years after he succeeded the late Queen Elizabeth as head of state.

The king’s image will appear on the new £5, £10, £20 and £50 notes issued by the Bank of England. Existing notes that carry a portrait of Elizabeth will continue to circulate.

However, it will take some time before the new notes are commonly seen in people’s wallets and purses. The new notes will gradually replace damaged banknotes, or will be printed when demand increases.

The Bank of England said:

This approach is in line with guidance from the Royal Household, to minimise the environmental and financial impact of this change. This means the public will begin to see the new King Charles III notes very gradually.

Elizabeth was the first monarch to feature on banknotes in 1960, in contrast to coins in England which have carried images of kings and queens for more than 1,000 years.

The reverse side of Bank of England polymer banknotes are unchanged, featuring Sir Winston Churchill, Jane Austen, JMW Turner and Alan Turing. Notes issued in Scotland and Northern Ireland do not feature the monarch.

In financial markets, Asian stocks are mixed, with Japan’s Nikkei 0.9% lower, dragged down by the renewed strength of the yen, and the Shanghai Composite slipping 0.7% while Hong Kong’s Hang Seng rose 0.4%. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.5%.

In India, the Nifty 50 index rose 1.9% in volatile trading, after sliding nearly 6% on Tuesday, its worst session in four years, when foreign investors sold around $1.5bn worth of shares. The BSE Sensex (formerly Bombay Stock Exchange) rose 2% after losing 5.7% yesterday. Both indices had touched lifetime highs on Monday.

Narendra Modi’s ruling BJP party lost an outright majority in parliament for the first time since he became prime minister in May 2014, forcing him to forge a coalition government to return to power. This has sparked uncertainty over economic policies, including Modi’s push for investment-led growth.

Mark Matthews, head of research for Asia at the bank Julius Baer said: