Pound hits 11-month high against dollar amid US banking turmoil; UK house building slumps – business live

Housebuilding in the UK has slowed to its lowest point since the first Covid-19 lockdowns.

The latest survey of UK construction firms has found that housing activity fell at the fastest rate since May 2020 in April.

Builders blamed delays to new house building projects, and weaker demand as higher borrowing costs hit the market.

This will fuel concerns that the UK will miss its target of building 300,000 homes a year.

But overall, construction activity rose again last month, lifted by rising volumes of commercial work and civil engineering activity.

This pushed the S&P Global / CIPS UK Construction PMI up to 51.1 in April up from March’s 50.7, showing faster growth [any reading over 50 shows expansion].

The sector has now expanded for three months running, despite the lag in housebuilding.

Tim Moore, economics director at S&P Global Market Intelligence, says the construction sector’s recovery is “worryingly lopsided”:

Commercial building work continued to outperform, helped by stabilising domestic economic conditions and a gradual rebound in business confidence. Civil engineering activity was also a driver of construction growth during April, with rising infrastructure work contributing to the best phase of expansion in this segment since the first half of 2022.

However, the return to growth for UK construction output appears worryingly lopsided as residential work decreased for the fifth successive month. Extended delays on new housing starts were reported again in April, due to a considerable headwind from elevated mortgage rates and weak demand. While there have been some signs of a recent stabilisation in market conditions, this has yet to feed through to construction activity.

In fact, the latest reduction in residential building was the fastest since May 2020.

“On a more positive note, the latest survey illustrated a further slowdown in input price inflation across the construction sector. Softer cost pressures partly reflected a sustained improvement in supply chain performance, with lead-times for deliveries of products and materials shortening to the greatest extent since September 2009.”

Full story: BA owner raises profit forecast as travel demand rebounds

Jasper Jolly

The owner of British Airways has upgraded its full-year profit expectations thanks to strong demand for holiday travel, as the airline group said it expected to fly almost the same number of passengers this year as it did before the coronavirus pandemic.

International Airlines Group (IAG) reported a first-quarter profit for the first time since 2019, before the travel industry was plunged into chaos by Covid lockdowns. It made an operating profit of €9m (£7.9m) in the first three months of the year.

IAG’s share price rose by 3.6% on Friday morning.

Since the end of most global travel restrictions airlines have been racing to restart routes, with demand for holidays in particular soaring and business travel also recovering, albeit more slowly.

Here’s the full story:

World food prices have risen, for the first time in a year, according to the United Nations food agency this morning.

The Food and Agriculture Organization’s (FAO) food price index, which tracks the most globally traded food commodities, averaged 127.2 points last month against 126.5 for March, the agency said on Friday.

The index was pushed up by increased prices of sugar and meat, while cereals, dairy and vegetable oil prices continued to drop

The index is still sharply lower than its record high of March 2022 following Russia’s invasion of Ukraine, although the fall in food commodity prices since didn’t stop consumer food prices soaring in the UK and the eurozone.

The pound is up over 4% against the US dollar so far this year, and up more than 10% over the past six months, points out Victoria Scholar, head of investment at Interactive Investor:

King Dollar, which outperformed in 2022 thanks to the Federal Reserve’s aggressive stream of rate hikes, is losing its crown as the central bank approaches the peak of its rate hiking cycle, reducing the allure of the world’s reserve currency. Other currencies including the pound have been benefitting from this shift away from the greenback. Since the nadir last September after the mini-budget which sharply punished sterling, the pound has been on a tear.

The US dollar is under pressure against the pound, the euro, and the Japanese yen today as investors expect a weak jobs report stateside later today with 180,000 job creations anticipated in April, the lowest monthly gain since December 2019 before the pandemic.

Meanwhile the pound remains well supported ahead of the Bank of England’s rate decision next week when the central bank is expected to raise interest rates again to 4.5% having previously lifted the bank rate by 25-basis points in March to fresh 2008 highs.

UK inflation remains stubbornly high while inflation rates in Europe and the US ease more quickly, with UK CPI stuck sharply above the 2% target at over 10%.

Last September, the pound hit its alltime low against the US dollar after then-chancellor Kwasi Kwarteng announced unfunded tax cuts in the mini-budget, and promised more were on the way.

Kwarteng’s successor, Jeremy Hunt, reversed the mini-budget, helping the pound to recover.

And now, the chancellor’s new economic adviser, Anna Valero, is urging Hunt to look beyond tax cuts to revive Britain’s anemic growth rates.

Valero says Hunt must significantly widen his new business investment stimulus, in an interview with Bloomberg.

Bloomberg explains:

Valero, a senior policy fellow at London School of Economics’s Centre for Economic Performance, warned that using tax cuts as a “quick fix” to boost growth wouldn’t work and called for more generous incentives to spur business investment.

The remarks underscore the competing demands Hunt faces if he finds money for giveaways ahead of the next general election, which is expected in 2024. He’s facing pressure from the ruling Conservative Party to reduce the tax burden, which is the highest it’s been in decades.

“If it was as easy as cutting taxes, then we would’ve seen that during the years that we had particularly low corporate tax,” Valero said in an interview on Bloomberg’s UK Politics Podcast. “The tax environment matters, but there are many other things we need to be doing for improving growth. Within the tax environment, we can be thinking about incentives for investment rather than the headline rate.”

Ouch. German factories have suffered one of their biggest falls in new orders in decades, giving the pound a lift against the euro.

German industrial orders fell by 10.7% month-on-month in March, significantly more than the 2.2% fall expected.

It’s the biggest fall since demand slumped in April 2020 early in the Covid-19 pandemic.

Orders from overseas tumbled by 13.3%, indicating global demand weakened, while domestic orders decreased by 6.8%.

Commerzbank chief economist Joerg Kraemer said.

“After three increases in a row, new orders literally collapsed in March, thus resumed their downward trend,”

“Increasing risks for the export-oriented German industry come from the global interest rate hikes. In addition, the impetus from working off orders that had been stuck due to a lack of materials is waning.

The pound has risen to a one-month high against the euro, at €1.143.

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

The pound has climbed to its highest level against the dollar in almost a year, as fears over the health of the global economy and the health of US regional banks grip the markets.

Sterling hit $1.263 this morning, up half a cent, to the highest level since late May 2022. Quite a recovery since last autumn, when it plumbed record depths around $1.03 after the mini-budget shambles.

The pound is being supported by encouraging economic data this week, showing a pick-up in UK mortgage applications, service sector growth, and car sales.

The dollar has weakened despite the Federal Reserve lifting US interest rates to a 16-year high this week, with traders noting that the Fed could soon end its tightening cycle.

The Bank of England is expected to raise interest rates next Thursday, to 4.5%, with the markets now pricing in one additional hike before the end of the year.

Today’s US employment report will show if America’s jobs market is cooling. Economists predict 180,000 new jobs were created in April, which would be a slowdown on March’s 236,000.

Also coming up today

America’s banking sector remains in turmoil, after shares in several regional lenders fell again yesterday.

PacWest Bancorp shed 50% by the close of trading last night, with First Horizon losing a third of its value. Western Alliance, which firmly denied a report it was exploring a potential sale, lost almost 40%.

PacWest had sought to calm markets on Wednesday and said it was in talks with several potential investors after its shares fell by as much as 60%. But the sell-off continued on Thursday and affected other regional banks.

“We believe the banks are having their GameStop-like moment, where social media is amplifying non-traditional approaches to assessing solvency,” Jaret Seiberg, TD Cowen analyst, wrote in a note, adding:

“This creates a self-fulfilling prophecy that pressures stock prices, which then leads to more questions.”

Another bank, HSBC, will also be in the spotlight today as it holds its annual general meeting. Investors will vote on a resolution calling for a spinoff of HSBC’s Asia business, backed by top shareholder Ping An, but opposed by the bank’s board.

The agenda

• 7am BST: German factory orders for March

• 9.30am BST: UK construction PMI for April

• 10am BST: Eurozone retail sales for March

• 11am BST: HSBC’s AGM

• 1.30pm BST: US jobs report for April