Mortgage borrowing was very strong in March with individuals borrowing an additional £11.8 billion secured on their homes.
This was the strongest net borrowing on record since the series began in April 1993, with the previous peak in October 2006 (£10.4 billion). The strength in net lending reflected gross lending also reaching a new series high in March (£35.6 billion).
The strong borrowing was driven by the expected ending of the temporary stamp duty tax relief at the end of March, which has now been extended to the end of June.
In total, there were 82,700 mortgage approvals for house purchase in March, lower than the recent peak of 103,100 in November 2020.
That’s still above pre-pandemic levels (73,000 mortgages were approved in February 2020).
This surge in borrowing is another sign that the UK housing market remains hot.
Last Friday, Nationwide reported that house prices jumped in April at their fastest pace since 2004 — sparking predictions of a “housing super-boom”.
CIPS: Brexit, Suez Canal blockage and pandemic all hit supply chains
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says ongoing trade disruption following the UK-EU free trade deal, and the blockage in the Suez Canal in late March, both caused problems in UK supply chains last month.
That’s on top of the impact of the pandemic.
Brock explains how demand picked up strongly last month:
“The manufacturing sector was flooded with optimism in April as the PMI rose to its highest level since July 1994, bolstered by strong levels of new orders and the end of lockdown restrictions opened the gates to business. It was primarily the home market that fuelled this upsurge in activity though more work from the US, Europe and China demonstrated there were also improvements in the global economy. This boom largely benefited corporates as output growth at small-scale producers continued to lag behind.
“As businesses raced to meet the need for increased capacity, the lost jobs of 2020 returned in greater numbers and employment creation continued in earnest at similar levels to last month and at a pace rarely surpassed in the survey history.
“However, the still significant delays in the delivery of goods due to the pandemic, Brexit and the Suez blockage in some sectors hampered further progress on two counts.
The slow delivery of goods motivated supply chain managers to increase their order numbers and try to build up recently unravelled stocks leading to further hold-ups, and the injection of more inflationary pressures into the economy.
This is likely to hit consumers, Brock warns, as manufacturers won’t absorb all these costs themselves:
Price rises were amongst the highest in the last three decades and shortages in some essential materials intensified. This in turn lead to customers paying more and at a rate not seen since records began in late-1999.
This is likely to filter down to consumers before too long.”
UK factory growth surges – as supply chain problems mount
British factories face a growing battle to get hold of raw materials and parts, as activity rebounds from the shock of the pandemic.
That’s according todata firm Markit’s latest UK manufacturing PMI, just released, which has jumped to 60.9 in April. That’s up from March’s 58.9, showing that activity accelerated last month.
It’s the highest monthly reading since 1994 (any reading over 50 shows growth), and nearly a record high.
But this is partly due to longer delivery times and rising input costs, as well as a rebound in production and new orders.
Purchasing managers from across UK industry reported that growth in output and new orders were both among the best seen over the past seven years, leading to a solid increase in employment.
Markit explains that stronger client confidence, the re-opening of parts of the economy and improving global market conditions boosted sales growth.
Manufacturing production increased for the eleventh successive month in April.
Output growth was attributed to a loosening of lockdown restrictions, improved demand and rising backlogs of work. Solid and accelerated expansions of output were seen across the consumer, intermediate and investment goods industries, with the consumer goods category the strongest performer overall.
But supply chain delays grew, as did the cost of commodities and parts — forcing companies to put up their own prices at a record pace.
The sector remained beset by supply-chain delays and input shortages, however, which contributed to increased purchasing costs and record selling price inflation.
Sorrell: Extremely optimistic about recovery
Advertising magnate Sir Martin Sorrell is also upbeat about growth prospects.
His digitally-focused S4 Capital hiked its revenue and profit forecasts this morning, calculating that demand will be driven by the economic recovery and stimulus spending.
With strong GDP growth expected this year, and in 2022 (after a terrible plunge in 2020), Sorrell predicts digital marketing will be in demand…. although 2023 could be tougher.
“We are extremely optimistic about our prospects for this year and next, given the huge global fiscal and monetary stimulus introduced to counter the impact of the pandemic and the subsequent increase in consumer savings ratios and stagnation of corporate capital investment”.
“The chickens may well come home to roost in 2023, given the debt burden that most countries will have and the tax increases that will have to be implemented. But, digital marketing expenditure remains robust, even in a recession, as our results last year demonstrate, given its secular growth trend.”
In its first-quarter results today, S4 now expects revenue and profit growth of 30 % for the full year, up from 25% previously, after a strong start to the year.
Last week, it emerged that Sorrell had called in the lawyers after his former employer WPP refused pay out hundreds of thousands of pounds in share awards, alleging he had leaked client information:
Infosys hiring 1,000 UK staff for IT surge
Jobs news: India’s software giant Infosys says it is hiring 1,000 staff in the UK to meet a digital growth surge.
Infosys says many will be new graduates, from “leading colleges and universities in the UK”. That could be welcome news for some of the students whose education has been disrupted by the pandemic.
They’ll be working on various IT services, such as cloud computing, data and analytics, artificial intelligence, open source technologies and enterprise software.
Salil Parekh, Infosys CEO, says the pandemic has driven demand for these services.
“While the talent gap has been looming, the events of the past year have exacerbated the need for vital digital skills as businesses have rapidly accelerated their digital transformation.
Bridging the digital divide and making quality digital education accessible to every citizen are vital to the establishment of a robust future workforce, and the UK’s economic recovery.
Infosys, incidentally, is founded by billionaire businessman NR Narayana Murthy, whose daughter Akshata (one of the UK’s richest women) is married to chancellor Rishi Sunak.
The news comes as the UK and India hold virtual trade talks – they’ve agreed an enhanced trade partnership, which could lay the way to a full free trade deal.
My colleagues Jessica Elgot and Richard Partington explain:
The agreement between Johnson and Modi includes an enhanced trade partnership, which is not as deep and comprehensive as free trade deals with some other countries such as the EU and Japan. It will lower non-tariff barriers on fruit and medical devices, with the expectation that this will allow British businesses to export more of their products to India.
The deal includes lifting restrictions to enable fruit producers across the UK to export British apples, pears and quince to India for the first time – although fruit exports are a relatively minor part of the UK economy, at just £1.3bn in 2020 to the whole world, out of total of £310.1bn.
Hospitality bosses didn’t have a great bank holiday. Not only was the weather rather grim at times, but they also lost a legal bid to force the government to reopen indoor dining in England faster.
The High Court ruled in favour of the government after a case was brought by Punch Taverns founder Hugh Osmond, and Sacha Lord, the night-time economy adviser for Greater Manchester.
A high court judge dismissed the attempt to bring forward indoor reopenings as “academic” because the hearing would be unlikely to take place before 17 May, when pubs and restaurants in England could welcome customers inside.
Lord says he’s disappointed by the ruling – and points out that the wet and windy weather was a blow to hospitality firms trying to serve customers outside.
“There are thousands of bars, pubs and restaurants across the country which are still closed and whose owners and employees are struggling financially due to these unfair restrictions.
“For the 40% minority who do have outdoor space, this weekend’s weather has only exacerbated the ongoing struggles the industry has continually faced, and I’ve heard of countless pubs that have been forced to close early or who have had zero customers due to the bad weather. Not only does this severely impact on business and sector recovery, but on the staff whose wages, and ability to pay rent, food and bills, are at the mercy of something as unpredictable as the weather.”
The purpose of the programme, which starts today is to “reduce the share capital of the Company”, it says.
The company is also in talks with tax authorities in the European Union that could lead to settlements related to a controversial deal between billionaire founder Mike Ashley (who owns 63.5% of its shares) and his brother.
My colleague Rob Davies explained yesterday:
Documents filed at the high court reveal that Sports Direct, since renamed Frasers Group, came under scrutiny in Ireland, France and Finland, over an arrangement that involved it paying VAT in the UK on all of its sales to customers overseas over a seven-year period.
The plan involved setting up a separate company called Barlin Delivery, which had no drivers or trucks and was run by Ashley’s computer scientist brother John, to deliver orders abroad.
The arrangement has already been the subject of a bruising investor revolt, after shareholders balked at Sports Direct’s plan to pay John Ashley £11m for his services.
But court papers suggest it also prompted scrutiny from European tax authorities, amid concern that the arrangement may have led to them missing out on VAT payment.
FTSE open: Travel shares rally on holiday hopes
In the City, the blue-chip FTSE 100 index has jumped around 0.85% in early trading, with travel companies among the risers.
The FTSE 100 gained around 60 points at the open to reach 7030 points, as traders returned to their desks after the Bank Holiday weekend. That’s close to the pandemic highs hit last month.
Optimism about economic reopening plans seem to be lifting the market.
Airline group IAG, which owns British Airways, is the top riser, up 3.8%, while holiday firm TUI has jumped 5.4% (to the top of the smaller FTSE 250 index). Budget airline easyJet has gained 3.5%.
Whitbread, which hotels in the UK (Premier Inn) and in Germany has gained 2.4%.
Yesterday, the EU said it would reopen to holidaymakers from countries with low Covid infection rates, such as the UK, and to anyone who has been fully vaccinated, by the start of June – in a bid to restart its tourism industry.
However, it’s understood the UK could give the green light to travel to fewer than 10 countries (without needing to quarantine on your return).
Commercial property firms British Land (+3.5%) and Land Securities (+3%) are also in the risers, which also suggesting optimism about the economic reopening.
But online grocer Ocado (-1%), takeaway group Just Eat (-1.4%), and software developer Aveva (-1.3%) are among the fallers, with tech stocks out of favour this morning.
Richard Hunter, head of markets at interactive investor, explains:
“With most major economies in the midst of a slow grind towards normality, markets continue to search for beneficiaries of the recovery.
In the US, there is further evidence of the “reopening” trade, with investors anticipating stocks and sectors likely to benefit from the return to some kind of normality. This in turn has applied some pressure on tech stocks, despite their largely upbeat earnings numbers, where valuations are coming under increasing scrutiny as the scale of their recent pandemic success comes into question as lockdowns subside.
German carmakers struggle to get hold of parts
German carmakers are also being hit by supply problems – particularly for semiconductors.
The IFO institute reports that conditions improved across Germany’s Automotive Industry, sending its gauge of business conditions to a two-year high.
Klaus Wohlrabe, Head of Surveys at ifo, declared that:
“Carmakers have now overcome the slump they suffered due to the coronavirus”
But while under 14% carmakers said lack of demand was a problem, more than half said the struggle to get hold of parts was leading to production restrictions.
At the moment, the main issue is problems with intermediate products, which were reported by 60.4 percent of the companies.
That figure compares to only 5.8 percent in July 2020; back in April 2020, it was as high as 42.0 percent. Several automotive plants have now announced they will introduce short-time work due to the shortage in silicon chips.
UK car factories have the same problem, of course, with both Jaguar Land Rover and Mini having to pause production last month.
Overnight, lumber prices hit a new record high, highlighting the squeeze on raw materials.
The spiraling demand for lumber – notably in the US – means a hefty bill for new home builders (as most new-build homes in America are wood framed). Ditto for those extending their homes, or even doing DIY jobs .
But it’s a boost for saw mill companies, who are raking in the profits, as supply simply can’t react fast enough to the economic rebound.
They are feasting on a glut of cheap pine trees in the U.S. South while their finished products like lumber and plywood are flying off hardware-store shelves and being bid up by home builders.
Lumber futures delivery later this month ended Monday at $1,575.60 per thousand board feet, a record and more than four times the typical price this time of year. Futures rose by the daily maximum allowed by the Chicago Mercantile Exchange during nine of April’s 21 trading sessions.
Introduction: Supply chain woes weigh on factories
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
In normal times, too much demand is a nice challenge to deal with. But right now, supply chain bottlenecks are causing increasing problems for factories as the world economy recovers from the economic shock of the pandemic.
Shortages of everything from lumber to semiconductors is hitting manufacturers, and the situation seems to be getting worse amid rising demand. Yesterday, the latest PMI survey from the US Institute for Supply Management (ISM) showed that these shortages were hitting growth, with factory activity rising at a slower pace in April. The ISM’s index of national factory activity fell to 60.7, from a 37-year high of 64.7 in March. That still showed decent growth, but weaker than expected.
The slowdown came because manufacturers are finding it hard to meet orders, as fiscal stimulus and vaccine rollouts in the US spur demand.
As Timothy Fiore, chair of the ISM’s manufacturing business survey committee, explained:
[Purchasing managers] “reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus impacts limiting availability of parts and material.”
Michael Pearce of Capital Economics says this squeeze is affecting almost every sector:
“What really stands out in the April report is just how broad the squeeze in supply of key commodities and intermediate inputs has become, with respondents’ comments suggesting supply shortages are affecting almost every industry.
That is reflected in the supplier deliveries time balance which, though it fell to 75.0 last month from 76.6, remains unusually elevated.”
This surge of demand has driven the Baltic Dry Index – which tracks the cost of moving raw materials – to its highest in over a decade last week.
The latest PMI survey of UK manufacturers, due this morning, will highlight how supply chains here are coping — as will new US factory order figures this afternoon.
Plus, the latest Bank of England mortgage data will probably show how the housing market remained strong in March.
9.30am BST: UK manufacturing PMI for April
9.30am BST: Bank of England consumer credit figures for March.
9.30am BST: UK mortgage approvals and lending for March