UK’s fragile economy ‘teeters on edge of recession’; government ‘slow’ to recover Covid fraud losses – business live

Economic woes continue to pile up in Germany.

Manufacturing orders in Europe’s largest economy fell by 11.7% month-on-month in July, official data this morning shows, a bigger fall than expected, following a 7.6% jump in June.

Statistics body Destatis says much of the sharp decline in new orders in July 2023 is due to a very large order reported in the manufacture of air and spacecraft in June 2023.

On an annual basis, factory orders were 10.5% lower than in July 2022.

Paul Donovan, chief economist at UBS Global Wealth Management, says:

German factory orders in July were a lot weaker than expected (of course the previous month’s data was revised, positively). This follows a drop in US factory orders. The pattern continues to support the idea of shifting consumer spending patterns.

Anxiety over the economic outlook is weighing on European stock markets again this morning.

In London, the FTSE 100 index has dropped by 66 points or 0.9% to 7371 points, on track for its third daily fall in a row.

France’s CAC has lost 0.7%, with Germany’s DAX index down 0.25%.

Yesterday’s jump in the oil price has raised concerns that interest rates could be kept higher for longer to fight inflation, hurting growth.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, explains:

‘’The downbeat mood on the markets is continuing, with little to lift sentiment in sight, as oil prices stay elevated and inflationary fears are pushed back up.

Brent Crude is still hovering around $90 a barrel, after jumping sharply on news that Saudia Arabia and Russia appear intent on extending voluntary cuts through to the end of the year. Riyadh’s decided to take 1 million barrels a day out of the market until the end of December, and Moscow following suit with a similar, but smaller, reduction has led to concerns about supply on world markets.

Barratt has also revealed that it has cut 6% of staff since the turmoil last autumn following the government’s mini-budget.

David Thomas, Barratt’s CEO, told shareholders:

As the slowdown in the market became apparent in late September 2022, we began a headcount freeze which has reduced our number of employees by 6% since the end of the first quarter.

We have continued to invest in priority areas including sustainability, building safety and in our IT infrastructure but are only hiring where additional skills are required by the business. We have also scaled back discretionary spend in other areas.

Then-chancellor Kwasi Kwarteng delivered the mini-budget on 22 September 2022. His plans for unfunded tax cuts sent the pound plunging to a record low and drove up UK borrowing costs, making mortgages much more expensive.

Barratt announced a hiring freeze in January, as demand for new homes weakened.

UK housebuilder Barratt has warned this morning that the backdrop “will continue to be difficult over the coming months”, as it confirms plans to build fewer homes this year.

In its full year results, Barratt says it completed 17,206 homes in the year to 30th June, a 3.9% drop on the 17,908 it built in the previous 12 months. Pre-tax profits rose almost 10% to £705m (but fell 16% on an adjusted basis).

In the current financial year, Barratt plans to build between 13,250 and 14,250 new homes, a sharp drop on last year.

It tells shareholders that high borrowing costs are hitting demand, saying:

Whilst there remains a clear need for increased housebuilding in the UK, short-term demand has been impacted by mortgage affordability challenges.

Shares in Barratt have dropped 1.7% in early trading.

In the energy sector, last ditch talks are taking place in Australia between Chevron and unions representing workers at two major liquefied natural gas (LNG) facilities, in an attempt to avoid planned industrial action.

Workers are set to start a series of work stoppages from Thursday in the dispute over pay and conditions.

If their terms are not met, they plan to escalate to a total strike.

Chevron Australia hoped to “narrow points of difference” through the mediated bargaining sessions, a spokesperson has said.

Employees last week almost unanimously rejected a pay and conditions deal put to them directly by Chevron, bypassing unions.

Concerns about the stoppages recently pushed up prices in natural gas markets, including in Europe, amid fears of supply disruption.

UK gas prices have dropped in early trading, with the day-ahead wholesale gas price down 3.6% to 80p per therm.

In another economic blow, this parliamentary term is on track to be by far the worst for living standards since the 1950s.

The Resolution Foundation is warning this morning that typical working age household incomes are on course to be 4% lower in 2024-25 than they were in 2019-20, as people are hit by higher mortgage rates, steep tax rises and a stagnant economy.

Never in living memory have families got so much poorer over a parliament, they say.

Adam Corlett, Resolution Foundation’s principal economist, said stable incomes next year will be a relief for many households, but warned:

“The bad news is that the living standards outlook is still dire, with overall stagnation and further income falls on the way for less well-off households”.

Here’s the story:

The UK government has been unacceptably slow to recover more than £1bn lost to fraudsters who took advantage of the coronavirus business support program, a parliamentary report says.

A report published today by the Public Accounts Committee finds that by May this year, the government had only recovered £20.9m of an estimated £1.1bn in fraud and error losses on its business support schemes in the pandemic.

That’s just 2% of the amount lost.

The PAC says that Department for Business and Trade (DBT) officials have argued that checking payments is very expensive, there are legal questions about the ability to recover some payments, and it will be “incredibly hard” to recover much of the losses.

The PAC is urging the Government to set out the specific steps it will take to tackle this fraud and error, to recover funds and restore public trust.

The government provided £22.6bn of support to businesses after Covid-19 hit the economy, but the PAC says we still don’t know what impact that support had, or how much of it was not needed.

Public Accounts Committee Chair, Dame Meg Hillier MP, says fraudsters took advantage of the schemes, so ministers must be “rigorously prepared” to avoid a repeat.

Hillier says:

The lack of planning from Government also meant that a door was left wide open in these schemes to fraudsters who took shameful financial advantage of schemes that were designed with national solidarity in mind. It is simply not good enough to give up on recovering this money simply because it is difficult to do so.

Public trust is harmed if the Government shrugs its shoulders at criminals lining their pockets with state support.”

Official data released in July showed that more than half of all company directors struck off in Britain in the past 15 months were involved in alleged fraud or abuse of Covid-19 financial support schemes.

Fraudulent claims included a roofer who applied for a £13,000 loan and spent it on gambling in three weeks, while another director applied for a loan and used it to buy class A drugs, the Observer reported:

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

The UK economy is set to flatline for the next six months, but it will ‘feel a lot’ like a full-blown recession for millions.

That’s the warning from the British Chambers of Commerce this morning, which fears economic activity in the UK’s ‘fragile economy’ will remain very weak throughout 2024 and 2025.

The BCC expects the next two quarters to flatline, leading to overall growth of 0.4% for the year.

This means the UK economy remains on course to avoid a technical recession, but growth is likely to remain so feeble that it will be hard to spot the difference, the BCC warns.

It has also slashed its forecast for the next two years, as the economy is hit by rising inflation and high interest rates which squeeze disposable income and household spending.

The UK economy expected to grow by just 0.3% in 2024 (down from a previous forecast of 0.6%), rising to 0.7% in 2025 (down from 1%).

The BCC warns:

Consistently low economic growth of this nature is comparable to previous periods of economic shocks and recessions such as the oil crises of the 1970s and financial crash of 2008.

Vicky Pryce, senior member of the BCC Economic Advisory Council, says:

“The BCC’s latest forecast shows the UK economy is continuing to teeter on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three years, it will still feel a lot like one for most people and businesses.

“The impact this will have on consumer spending, coupled with a poor trade performance, will only generate more uncertainty for firms.

There is currently little on the table to provide companies with any crumbs of comfort, Pryce fears, adding:

As we head towards an election next year, politicians will have to show how they will work with the business community to find solutions.”

The BCC predicts that inflation will have dropped to 5% in the final quarter of the year – enough to hit the government’s target of halving inflation in 2023. But, it fears CPI won’t reach the Bank of England’s (BoE’s) 2% target until the last three months of 2025.

Wages are expected to rise a little faster than inflation in 2024 and 2025.

Also coming up today

Top brass from the Bank face a grilling at parliament today. BoE governor Andrew Bailey will be questioned over inflation and rising interest rates, which hit a 15-year high last month.

Fighting inflation became a little harder yesterday, when the oil price hit $90 per barrel for the first time this year after Saudi Arabia and Russia said they would cut output until the end of the year.

The agenda

• 8.30am BST: Eurozone construction PMI report for August

• 9.30am BST: UK construction PMI report for August

• 10am BST: OECD Economic Survey of the EU and euro area

• 10am BST: Eurozone retail sales for July

• 2.15pm BST: Bank of England governor to be questioned on inflation and rising interest rates by the Treasury Committee