The Guardian - 24.07.2019

Section:GDN 1N PaGe:29 Edition Date:190724 Edition:01 Zone: Sent at 23/7/2019 18:35 cYanmaGentaYellowb

Wednesday 24 July 2019 The Guardian •

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Brexit and global slowdown shrink UK

factory orders at fastest rate since 2010

La rry Elliott

Kalyeena Makortoff

A double whammy of Brexit uncer-

tainty and a slowdown in global trade

has led to order books in Britain’s fac-

tories shrinking at their fastest pace

since 2010 at the height of the fi nan-

cial crisis, according to the CBI.

Urging the new prime minister to

strike a deal with the EU, the employ-

ers’ organisation said industrial output

also fell in the latest quarter, for the

fi rst time since the spring of 2016.

The CBI’s industrial trends sur-

vey showed that business optimism

had fallen, investment intentions had

worsened and fi rms had run down the

stocks built up ahead of the original

Brexit deadline, 29 March.

According to the survey, manu-

facturers believe an improvement in

the political outlook over the coming

months will lead to a pick up in orders

and output.

Rain Newton-Smith, the CBI’s chief

economist , said: “As the tailwind from

stockpiling weakens, clouds are gath-

ering above the manufacturing sector.

“It’s being hit by the double blow of

Brexit uncertainty and slower global

growth,” she said.

“With orders, employment, invest-

ment, output and business optimism

all deteriorating among manufac-

turers, it’s crucial for the new prime

minister to secure a Brexit deal ahead

of the October deadline. And get on

with pressing domestic priorities,

from improving our infrastructure to

fi xing the apprenticeship levy.

“This will allow fi rms to focus on

investing in new technology and

tackling the skill shortages that plague

this sector.”

A leading Bank of England policy-

maker said Brexit risks could scupper

plans to raise interest rates even if the

bank’s forecasts suggested the econ-

omy was ready for a hike.

While markets have started pricing

in the possibility of a no-deal Brexit

and subsequent interest rate cuts, the

Bank’s central forecasts are still based

on a smooth exit from the EU.

Michael Saunders , a member of the

Bank of England’s monetary policy

committee, told Bloomberg that the

outcome was uncertain. His comments

suggested that economic projections

by the central bank may not be enough

to convince him – recently one of the

more hawkish MPC members – to vote

for a rate rise.

Interest rates were cut to a record

low of 0.25% after the EU referendum

but have since been raised twice to

reach 0.75%. Saunders backed the last

IMF: Trump’s

protectionism

is hurting

China more

than the US

Larry Elliott

Economics editor

Donald Trump’s claim that his pro-

tectionist measures are hurting

China more than the US has received

support from the International Mon-

etary Fund in new forecasts showing

how a fresh slowdown in the global

economy has been concentrated in

emerging economies.

The Washington-based IMF said

the outlook was gloomier than it

envisaged three months ago owing

to the tit-for-tat tariff war between

the world’s two biggest economies,

Brexit uncertainty and the impact on

oil prices of sanctions against Iran.

In an update to its half-yearly World

Economic Outlook, the IMF said it

expected global growth to be 0.1 per-

centage points lower in both 2019 and

2020 than it envisaged in April , at 3.2%

and 3.5% respectively.

The fund upgraded its forecast of

US growth this year from 2.3% to 2.6%

but downgraded China’s from 6.3% to

6.2%. “In China, the negative eff ects of

escalating tariff s and weakening exter-

nal demand have added pressure to

an economy already in the midst of a

structural slowdown and needed reg-

ulatory strengthening to rein in high

dependence on debt.”

Emerging and developing econo-

mies as a whole are now expected to

grow by 4.1% this year – a cut of 0.3

points from April – with a slower pace

of expansion pencilled in for Russia,

India, Brazil and Mexico.

The forecasts came amid growing

optimism that the US and China could

soon settle their diff erences.

Shares rose in Asia and Europe

after it was reported that the US trade

representative, Robert Lighthizer,

and the treasury secretary, Steven

Mnuchin, w ould meet China’s vice-

premier, Liu He , next week.

The IMF said growth had been bet-

ter than expected in the US and Japan

in the fi rst half of 2019, while one-off

factors that had hurt eurozone growth

in 2018 (notably, adjustments to new

car emissions standards) had appeared

to fade as anticipated.

But the IMF fired a warning to

the White House about the risks of

a full-blown trade war. “Multilateral

and national policy actions are vital

to place global growth on a stronger

footing,” it said. “The pressing needs

include reducing trade and technology

tensions and expeditiously resolving

uncertainty around trade agreements

(including between the UK and the EU

and the free trade area encompassing

 Chinese

shipping

containers at

the port of Los

Angeles. The IMF

has warned the

US of the risks

of a full-blown

trade war

PHOTOGRAPH: MARK

RALSTON/AFP/GETTY

Canada, Mexico and the US). Specifi -

cally, countries should not use tariff s

to target bilateral trade balances or as

a substitute for dialogue to pressure

others for reforms.”

The IMF edged up its growth fore-

cast for the UK this year from 1.2%

to 1.3% and left it unchanged at 1.4%

for 2020. “The forecast assumes an

orderly Brexit followed by a gradual

transition to the new regime,” it said.

two hikes, but said : “The link from the

forecast to my vote was quite loose .”

Saunders’ comments raise the pros-

pect of an interest rate cut in the case of

a no-deal Brexit, the prospect of which

has risen since Theresa May’s resigna-

tion as prime minister. Boris Johnson,

announced as her successor yesterday ,

has said Britain will leave the EU on 31

October, “do or die”.

The Bank’s chief economist, Andy

Haldane, speaking in Scunthorpe, said

that it would take more than the cur-

rent sluggishness of the economy to

persuade him to cut interest rates.

“I would be very cautious about

considering a monetary policy loos-

ening barring some sharp economic

downturn,” he said. Despite “Brexit-

related volatility”, Haldane said the

UK’s underlying growth rate was

steady, high employment was push-

ing up pay and there were signs that

the housing market had bottomed out.

He said there was a risk that low

interest rates could become nor-

malised and it was “important that

monetary policy is not a prisoner

of its past, that the monetary cav-

alry are not called at the fi rst whiff of

grapeshot, that a dependency culture

around monetary policy is not allowed

to develop.”

‘It’s crucial for the

new prime minister

to secure a Brexit

deal ahead of the

October deadline’

Rain Newton-Smith

Chief economist, CBI

6.2%

The IMF’s

latest forecast

for growth in

China this year,

downgraded

from its previous

forecast of 6.3%

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