Market report

UK returns to growth amid rising tensions in Red Sea

Attacks on shipping in the Red Sea have raised prices (pic: BBC)

Britain’s economy eked out a 0.3% expansion in November, though growing tensions in the Red Sea leave the likelihood of recession on a knife edge.

The Office for National Statistics said the bounce back was led by the services sector, with retail, car leasing and computer games firms all doing well.

Industrial and manufacturing production rose by 0.3% in November from minus 0.8% in the previous month.

The data comes days ahead of new inflation figures. Economists believe that the headline Consumer Price Index (CPI) retreated in December to 3.7% from 3.9%.

Despite the slightly improved figures, rising inflation in the United States has dampened expectations of early interest rate cuts on either side of the Atlantic.

US prices grew by 3.4% in December on an annual basis, up from 3.1% in the previous month, according to the US Bureau of Labor Statistics.

The figure was above Wall Street’s expectations of a 3.2% rise and brought an end to a run of declining inflation in the world’s largest economy.

Global markets had priced in up to five rate cuts in the US over the course of 2024, with the Bank of England expected to follow with its own rate cuts, perhaps as early as May. Sanjay Raja, a senior economist at Deutsche Bank, has forecast that UK’s inflation may slip below the official 2% target by April, allowing for a cut in the interest rate from its current 5.25%.

Houthi attacks raise risk level

However, this scenario is threatened by the potential impact on supplies resulting from Iran-backed attacks on vessels in the Red Sea by Houthi rebels in Yemen which has raised shipping costs.

A tanker near the Strait of Hormuz, a strip of water between Iran and Oman through which about 20% of all the world’s oil trade passes, was boarded by unauthorised personnel dressed in military uniforms yesterday, sending oil prices up by nearly 2%.

British and US forces last night launched strikes on Houthi targets, after the group ignored warnings to stop attacking ships.

Marco Forgione, director general of the Institute of Export & International Trade, said: “The decision to launch air strikes tells us just how serious the economic impact of shipping disruption in the Red Sea is, and could potentially become if not addressed. These rebel attacks amount to a weaponisation of global supply chains.

“The 0.3% GDP increase just announced for November is good news on the face of it. But with the Treasury estimating that the Red Sea disruption so far has knocked exactly that amount off GDP in recent weeks, those gains in November have effectively been wiped out already. And it could get worse. Analysts also estimate the global GDP has taken a 1.3% hit because of the disruption so far.

“The manufacturing sector is at particular risk, given it operates on a ‘just in time’ process. A significant proportion of different components, commodities and ingredients all come through the Suez Canal, and if these are being delayed then this will feed through into the ability of manufacturers to maintain the production of goods. We can expect more warnings like those this week from the likes of Tesla if things don’t change.

“Price pressures are mounting. Overnight we have seen oil prices spike by 2%. Consequently, consumers are likely going to have to endure shrinkflation alongside the possibility of a shortage of some goods that are being affected by the delays. These attacks will undoubtably escalate the pressure on global inflation, with estimates suggesting an increase of up to 5 – 10% for goods that were due to come through from this route.

“These are real world consequences for business and for consumers, happening now, and being compounded by restrictions in the Panama Canal – another vital global trade route. We wait to see what impact these strikes will have.”

The FTSE 100 closed 75.17 points, or 1%, lower at 7,576.59 while the oil price hit $80 a barrel.


MARKETS

Edinburgh Airport has been acquired by the world’s biggest investor as part of a $12.5 billion deal which also involves Gatwick and some key ports, according to news reports in the US.

Fund manager BlackRock is buying Global Infrastructure Partners (GIP), owner of Edinburgh and Gatwick, the UK’s second-biggest airport, in its biggest acquisition for a decade.

GIP manages $100bn of assets and acquired the airport assets following the break up of BAA. It also holds a stake in Peel Ports, owner of assets in Scotland and England.

… more follows


FTSE 100

The FTSE 100 closed up 48.34 points at 7,624.93.


Burberry

Luxury fashion chain Burberry saw sales fall 7% year on year to £706m for the 13 weeks ending 30 December and warned that its adjusted operating profit for the financial year ending in March 2024 would be between £410m and £460m – below previous guidance. 

However, the retailer said it was confident its projected revenue ambition of £4bn would remain the same. 

Chief executive Jonathan Akeroyd said: “We remain confident in our strategy to realise Burberry’s potential and we are committed to achieving our £4bn revenue ambition.”


Wood Group

Energy services company Wood Group is showing good growth across all its operations with the order book rising and stronger cash generation.

Full story here



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