Headlines were grabbed late in the week by President Trump’s announcement that he would introduce 25% tariffs on steel imports from the EU, Canada and Mexico, along with 10% tariffs on aluminium imports. All parties have said they will take retaliatory measures, with the EU already saying it will place tariffs on US products such as motorcycles, food and drink.
Undeterred, Trump is also eyeing tariffs on the car industry in a move that would seriously test relations not only with the EU but with Asian producers, broadening the impact of any trade war. Leaders around the world have condemned the tariffs as “damaging”, potentially ending some trade relationships altogether. It is said that if German cars are subject to a 25% tariff, all profits will be eradicated. In the UK, Liam Fox, British Trade Secretary, described the tariffs as “very disappointing” and did not rule out retaliatory action by the UK, which supplies steel to the US defence industry.
The UK services sector, which accounts for over 70% of the economy, has seen growth among its various sub sectors diverge, according to the latest data from the Confederation of British Industry (CBI). Its latest quarterly service sector survey showed that business and professional services companies, such as accountancy firms, lawyers and PR and marketing companies, all saw their business volumes grow at the fastest pace since 2015. They also expect the expansion to continue into the next three months as their optimism rose at its fastest pace for 12 months.
Conversely, the consumer services companies, such as hotels, bars and restaurants, sales volumes fell in the three months to May and optimism deteriorated, although the majority expect a rebound in volumes over the next quarter. Profitability rose in professional services – again at its strongest pace for three years, but in consumer services, rising costs and falling sales volumes meant profits dropped.
Some good news from consumers emerged from the GfK consumer confidence barometer, which showed sentiment rose in May, to -7 from -9 the previous month, largely due to an improvement in personal finances. Wages beginning to outpace inflation and continued low interest rates helped lift sentiment on the one hand, but consumers were still pessimistic about the outlook for the economy. The reading for the coming year was -21, and this depressing outlook on the economy has kept the overall confidence reading at 0 or below for 29 months in a row.
On Thursday another positive note emerged, announcing that consumer credit rose by £1.8billion in April, a vast improvement on March’s figure of just £0.4billion, according to the Bank of England. While lending for mortgages remained relatively weak, the consumer lending figures add weight to the argument that optimism is picking up in the second quarter. On Friday the latest data on the UK manufacturing sector was released, revealing activity stronger than expected. The IHS Markit manufacturing purchasing managers’ index rose from 53.9 in April to 54.4 in May. Solid demand around the world and the continued effect of a weaker pound are still aiding the sector. However, a spokesman for IHS Markit said the report was less than convincing. While the sector average rose, new business expansion hit an 11-month low; the increased PMI balance was deemed to be the result of working through a backlog of orders built up during the bad weather over the past few months. Cost inflation is also hitting UK manufacturers, largely down to higher oil prices, which may well filter through to the consumer and affect demand down the line. Weaker sales also led to the largest increase in unsold stock in the 26-year history of the survey.
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Main source of information: Company Report and Accounts, Bloomberg
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