Theresa May announced this morning that she will resign on June 7 after being told that her revamped Brexit deal had no chance of passing. Her resignation will trigger a leadership contest the following week in which Boris Johnson is the firm favourite. Whoever succeeds her is likely to take a hard stance on Brexit but will inherit a divided parliament where there has been no majority for any of the Brexit options put before it. However, the leader must somehow unite the Conservatives and woo disillusioned voters who, polls suggest, have switched to Nigel Farage’s Brexit Party in the European Elections, held yesterday in the UK. There will be no results announced until Sunday evening because most other EU member states will be holding their votes that day. However, the latest polling average has put the Brexit Party on 33%, compared to 18.5% for Labour, 16.8% for the Liberal Democrats and 11.8% for the Conservatives. If correct it would be the Tories’ worst share of the vote in a national election since they were founded in 1834.
The trade war between the US and China escalated dangerously as the talks between the world’s two largest economies deteriorated. The failure to reach a deal prompted Chinese President Xi Jinping to call for a new "Long March", a reference to the 1934 tactical retreat by the Communists under Mao Zedong that enabled them to regroup and eventually win their battle with the ruling Nationalists. He also insisted the US correct its “wrong actions” or the talks would not resume.
The dispute was part of the reason that the Organisation for Economic Cooperation and Development (OECD) cut its global growth forecast for the year from 3.3% to 3.2%, whilst urging governments to resolve their trade issues.
At home, inflation moved above the Bank of England’s 2% target in April as a result of rising energy prices. The Office for National Statistics (ONS) said that inflation hit 2.1% last month, up from 1.9% in March, as the energy regulator Ofgem lifted its cap on gas and electricity prices. Electricity prices rose by 10.9% between March and April, and gas was up by 9.3%. The reading was less than the 2.2% predicted by economists.
The UK property market appeared to flatline in May, but the capital is seeing outright price falls, according to a survey by property group Rightmove. It said house prices were 0.1% higher on an annualised basis in May, compared to a 0.1% drop the month before. It added that four out of 11 regions were seeing prices rise, with Wales, the West and East Midlands and the North West all setting record highs. In London, however, only two of the 32 boroughs saw price increases.
UK manufacturers saw the biggest monthly fall in orders since late 2016, as the effects of pre-Brexit stockpiling before the original March deadline washed out of the data. The Confederation of British Industry (CBI), said that its monthly order book reading fell to -10 from -5 in April, worse than all analysts’ forecasts, in a poll by Reuters. It is the worst reading since October 2016 and particularly worrying because orders usually rise in May. Factories are now sitting on the largest inventories of finished goods since late in the financial crisis in 2009, and data suggests a potential downturn for the sector in the second quarter. The Bank of England expects the UK economy to grow by just 0.2% in the second quarter, less than half the figure recorded in the first quarter.
Main source of information: Company Report and Accounts, Bloomberg
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