Eurozone inflation falls to 6.1%; Brexit a ‘historic economic error’; US private payrolls rise – as it happened

Last modified: 03: 46 PM GMT+0

Eurozone inflation eased more than expected last month, as former US Treasury secretary Larry Summers warns Brexit helped to drive up UK inflation

Closing post

Time for a recap…

Inflation across the Eurozone has fallen to its lowest level since Russia’s invasion of Ukraine. Consumer prices rose by 6.1% in the year to May, while energy costs were actually cheaper than a year ago.

Core inflation, closely watched by central bankers, dipped to 5.3%, suggesting the inflationary pressures on households eased a little last month.

Charles Hepworth, investment director at GAM Investments, says the fall is “a modestly welcome sign for both bond and equity investors”.


Core CPI which excludes the more volatile (but paradoxically more important from a consumer viewpoint) food and energy inputs rose 5.3% against expectations of a 5.5% advance.

Whilst the delta is going in the right direction, this is still multiple times over the ECB target inflation level and uncomfortable for the ECB whom we believe will still remain in hawkish mode at upcoming policy meetings.

The former US treasury secretary Larry Summers has said Brexit will be remembered as a “historic economic error”, which damaged the UK economy and has helped to drive inflation higher.

Summers told Radio 4’s Today programme:

I think Brexit will be remembered as a historic economic error that reduced the competitiveness of the UK economy, put downward pressure on the pound and upwards pressure on prices, limited imports of goods and limited in some ways the supply of labour.

All of which contributed to higher inflation.

UK factories blamed “post-Brexit trade and transportation complications” for a drop in exports last month, which helped to pull down manufacturing activity in May.

The UK housing market has come under more pressure too. Prices fell by 3.4% in the year to May, the biggest annual drop since 2009.

Fewer mortgages were approved in April than in March, as borrowers paid down their debts, Bank of England data shows.

Mortgage debt & lending declines to record levels in April taking net borrowing of mortgage debt to its lowest level since April 1993 (exc pandemic) Borrowing of mortgage debt by individuals declined from net zero in March to £1.4bn of net repayments in April @bankofengland

— Emma Fildes (@emmafildes) June 1, 2023

In the US, private sector employment increased by 278,000 in May, ahead of expectations, setting the scene for tomorrow’s Non-Farm Payroll.

GOLDMAN: “According to the ADP report, private sector employment rose by 278k in May, 108k above consensus expectations .. We left our nonfarm payroll forecast unchanged at +175k ..” #NFP

— Carl Quintanilla (@carlquintanilla) June 1, 2023

Elsewhere today:

Supermarkets have cut more than 7p a litre from the price of diesel since the UK’s competition watchdog warned it would question retail bosses about unnecessarily high forecourt prices, according to the RAC.

Dr Martens said it has struggled to sell its chunky lace-up boots in the US and admitted attempts to correct “mistakes” in its American supply chain had triggered a slide in its annual profits.

Britain’s biggest retailers and food manufacturers are stepping up lobbying on the government to delay landmark environmental reforms that would force them to pay for the collection and recycling of household packaging waste from next year.

And the Confederation of British Industry, is to lay off a swathe of its workers as it fights for survival amid a crisis prompted by multiple sexual misconduct allegations.


Food producers and retailers lobby to delay UK household recycling reforms

Britain’s biggest retailers and food manufacturers are stepping up lobbying on the government to delay landmark environmental reforms that would force them to pay for the collection and recycling of household packaging waste from next year.

Industry bosses have used Downing Street crisis talks arranged in response to soaring food prices to warn that the plans – due to come into effect in April 2024 – would drive up shopping bills further amid the cost of living crisis.

In meetings summoned by Rishi Sunak as food prices rise at the fastest annual rate since the 1970s in the past month, supermarket bosses and food manufacturers are understood to have asked ministers to halt the launch of the “extended producer responsibility” (EPR) scheme.

Under the plans, food producers and retailers that sell own-brand products will be obliged to report packaging waste data from January next year and pay the full cost of packaging waste disposal from April. The changes apply to companies with turnover of £1m or more, and the money would be paid to local councils to help fund green bin collections.

Business leaders argue the scheme will cost at least £1.7bn a year, saying the bulk of the cost would be passed on to consumers through higher prices on the supermarket shelves.

More here:

Dollar General, the US discount store chain, is also suffering from a spending slowdown.

Dollar General slashed its full year outlook after a dismal earnings report today, which missed Wall Street expectations.

CEO Jeff Owen said the macroeconomic environment “has been more challenging than expected, particularly for our core consumer.”

These headwinds are having a “significant impact” on its customers’ “spending levels and behaviors,” Owen added.

Shares in Dollar General have tumbled 20% in morning trading in New York.

Dollar General’s shares plunged after the discount retailer slashed its annual profit forecast, citing rising economic pressures on its shoppers

— Bloomberg (@business) June 1, 2023

US department store chain Macy’s has cut its annual sales and profit forecasts, blaming a slowdown in demand as inflation hits consumer spending.

Macy’s said it will need to run further discounts to clear out excess spring and summer stocks.

CBI plans to cut workforce by one-third to cut wage bill

The UK’s most prominent business lobby group, the Confederation of British Industry, is to lay off a swathe of its workers as it fights for survival amid a crisis prompted by multiple sexual misconduct allegations.

The CBI needs to cut its wage bill by a third within months, staff were told at an all-hands meeting on Thursday morning, according to sources with knowledge of the discussion, with management aiming to initially use voluntary redundancies to trim costs.

A spokesperson for the lobby group, which employs 300 people, confirmed it had to make “difficult decisions” including cutting its salary base by a third, along with other “cost-saving measures”. “It will be a smaller and refocussed organisation in the future,” they said.

On Wednesday the CBI opened a confidence vote on its future and laid out a prospectus detailing plans for a reformed culture and governance. The result of the vote is expected to be released shortly after a 6 June extraordinary general meeting (EGM) with members.

More here, by my colleague Anna Isaac:

Separately, PA Media are reporting that dozens of the UK’s biggest firms who resigned their CBI membership in April when the allegations of misconduct were reported have not received invitations to next week’s crunch meeting.


The Bank of England’s latest auction of long-dated government bonds received limited demand today.

Reuters has the details:

The Bank of England received low demand from investors at an auction of £770m of long-dated government bonds from its asset holdings on Thursday, pushing gilt prices off a day’s high.

Investors submitted bids worth a total of £1.043bn pounds for the bonds with maturities of more than 20 years, giving a bid-to-cover ratio of 1.35, the lowest since an auction of £650m pounds of long-dated gilts on Febuary 13.

The auction is part of the Bank’s quantitative tightening (QT) programme, in which it is selling some of the £895bn of gilts bought through its bond-buying, or quantitative easing, programme,

Back in economics, America’s manufacturing sector struggled last month as weak demand dragged on its performance, new data shows.

The latest survey of purchasing managers from S&P Global has found that new orders at US factories contracted, due to “muted demand conditions”.

Output and employment continued to increase, however, as firms expanded their capacity to fulfil existing backlogs of work amid improved supply conditions.

The US manufacturing PMI dropped to 48.4 in May, down from 50.2 in April, and below the 50-point mark showing stagnation. It shows the fastest deterioration in operating conditions since February.

A rival PMI survey from the Institute of Supply Management has confirmed this, showing US manufacturing contracted for the ninth month running in May.

The ISM’s manufacturing PMI fell to 46.9 last month from 47.1 in April. It was the seventh straight month that the PMI stayed below the 50 threshold, the longest such stretch of contraction since the Great Recession.

🇺🇸 US ISM PMI fell to 46.9 in May!
📉PMI 46.9 (est. 47.0, prev. 47.1)
📈Production 51.1 (prev. 48.9)
📉Orders 42.6 (prev. 45.7)
📈Employment 51.4 (prev. 50.2)
📈Customers’ inventories 51.4 (prev. 51.3)
📉Prices 44.2 (prev. 53.2)
📈Export Orders 50.0 (prev. 49.8)
📊More details:…

— MacroMicro (@MacroMicroMe) June 1, 2023

Tesla CEO Elon Musk with employees at the auto maker's Shanghai factory, in Shanghai, yesterday
Tesla CEO Elon Musk with employees at the auto maker's Shanghai factory, in Shanghai, yesterday Photograph: Tesla, Inc. Handout/EPA

Elon Musk has reclaimed his position as the world’s wealthiest person from LVMH CEO Bernard Arnault.

That’s according to Bloomberg’s tally of global billionaires, which estimates Musk’s net worth is now about $192bn, up $2bn yesterday.

Arnault’s wealth dropped over $5bn, to $187bn, following a drop in the share price of his French LVMH luxury goods empire hit a record high.

In early April, Arnault’s wealth topped $200bn for the first time as LVMH’s shares hit a record high. But, they’re down 7% in the last month, on fears that demand for luxury goods could shrink if the global economy stumbles.

Tesla’s stock has gained 25% over the last month, though.

Earlier this week Musk made his first trip to China in over three years. He met with China’s foreign minister Qin Gang, and also visited Tesla’s huge manufacturing plant in Shanghai.

Another sign that the US jobs market remains robust – new jobless claims were lower than forecast last week:

BREAKING! #Powell just can't get a break.
First, initial jobless claims (232K and below expectations last week) are declining again after rising a for just a couple of weeks. 🧵

— jeroen blokland (@jsblokland) June 1, 2023

US job creation strong in May

Over in the US, companies added more new hires than expected last month despite the efforts to cool the economy with higher interest rates.

Payroll operator ADP has reported that private sector employment increased by 278,000 in May, ahead of forecasts for a 180,000 gain.

ADP reports:

Job growth is strong while pay growth continues to slow. But gains in private employment were fragmented last month, with leisure and hospitality, natural resources, and construction taking the lead.

Manufacturing and finance lost jobs.


US ADP Employment prints at 278K, well above expectations of 173K ahead of tomorrow's #NFP report


— Matt Weller CFA, CMT (@MWellerFX) June 1, 2023

That’s an encouraging sign for the health of the US economy. But, it could spur the Federal Reserve to lift interest rates higher, and keep them there for longer.

Nela Richardson, chief economist at ADP, reports that pay growth is slowing:

This is the second month we’ve seen a full percentage point decline in pay growth for job changers. Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.

Tomorrow we get the official measure of the US jobs market, the Non-Farm Payroll.

Strong ADP jobs estimate (278k vs 170k BBG median forecast) has goosed the $USD, which had begun recovering in the run up. Still, ADP data does poor job tracking the BLS estimate, but it won't stop some from revising up their forecasts or talk of a whisper number.

— Marc Chandler (@marcmakingsense) June 1, 2023

The head of the European Central Bank warned this morning that eurozone inflation remains too high, even as interest rate rises start to have an effect.

Christine Lagarde said in a speech that:

“Today, inflation is too high and it is set to remain so for too long.

“That is why we have hiked rates at our fastest pace ever – and we have made clear that we still have ground to cover to bring interest rates to sufficiently restrictive levels.

Here’s our news story on Larry Summers’ comments on Brexit this morning:

In the airline industry, domestic travel has now fully recovered from its slump in the pandemic.

Worldwide domestic traffic rose 42.6% year-on-year in April, and was 2.9% higher than in April 2019 results, data from industry body IATA shows.

But overall, global traffic is now at 90.5% of pre-Covid levels.

The recovery in air travel shows economic activity is recovering from the Covid-19 shock.

Increased flights is a blow to efforts to stem climate change. France, though, is pushing back with a ban on domestic short-haul flights where train alternatives exist.

Despite concerns that Brexit is a blunder, the opposition Labour Party continue to argue that Britain’s future is outside the EU (Keir Starmer wrote as much in the Express this week).

Our economics correspondent, Larry Elliott, has written about the two main political parties are converging on key issues, including Brexit.

Here’s a flavour:

Neither party wants a second referendum, or even a renegotiation that would involve going back into the single market. Rishi Sunak and Keir Starmer are both keen to remove some of the trade friction between the UK and the EU, but that is as far as it goes.

For a variety of reasons, the right’s vision of a post-Brexit Britain in which the economy would be made more competitive as a result of lower taxes and deregulation has never materialised. Nor was it the sort of Brexit leave voters in the less well-off parts of the country wanted anyway.

Starmer and Reeves hope to convince the public that there is a better way to do Brexit. They will be helped in this by the second strand of the new consensus: the recognition that a bigger and a more activist state is here to stay.

And here’s the full piece:

Brexit, the environment, energy bills … it’s hard to tell Labour and Tory policies apart | Larry Elliott

— The Guardian (@guardian) June 1, 2023


Concerns that Brexit trade tensions would hit UK exports became a reality last month, says Dr. John Glen, chief economist at the Chartered Institute of Procurement & Supply.

Glen says this led to the drop in sales to Europe, and in manufacturing growth, which was reported in this morning’s factory PMI data.

He explains:

“Improved efficiencies in supply chains were partly to blame for the four-month low in new orders as safety stocks were used up and especially domestic businesses became more confident that ordered goods would arrive. However, another fall in export orders for the sixteenth month demonstrated that customers from overseas became tired of additional administrative Brexit checks. The fear around near shoring goods became a reality and the fall in overseas interest was the fastest since January.

Fears of more interst rate rises, and stubborn inflation, will continue to keep business owners awake at night, Glen predicts, adding:

The threat of recession narrowly missed at the end of last year hasn’t passed entirely so businesses will be tightening their belts for lean times to come which could include more job shedding and reduced operations.”

Post-Brexit checks hit sales at UK factories

Brexit was partly responsible for the drop in UK factory output last month (see earlier post).

UK manufacturers reported that some of their EU customers are switching to local sources to avoid “post-Brexit trade and transportation complications”, due to trade frictions at the border.

That contributed to weaker demand from Europe, and an overall drop in new export orders fell for the sixteenth consecutive month in May.

Rob Dobson, director at S&P Global Market Intelligence, said:

Manufacturers are finding that any potential boost to production from improving supply chains is being completely negated by weak demand, client destocking and a general shift in spending in the UK away from goods to services.

These factors are also driving a broad decrease in demand from overseas amid reports of lost orders from the US and mainland Europe.

The retrenchment in export demand is also being exacerbated by some EU clients switching to more local sourcing to avoid post-Brexit trade complications.


Euro zone core inflation has turned the corner and is clearly moderating, says Moody’s Analytics economist Kamil Kovar.

One month could be a fluke.

Two months could be a coincidence.

Three months is a trend.

Euro zone core inflation has turned the corner and is clearly moderating.

— Kamil Kovar (@CrisisStudent) June 1, 2023

Piet Haines Christiansen of Danske Bank says the eurozone is now experiencing a “disinflation impulse”, as price pressures ease.

Euro area disinflation impulse kicks off, which is a feature, not a bug.

The question is not whether inflation will fall, but how fast and to what new level.

— Piet Haines Christiansen (@pietphc) June 1, 2023

The drop in UK mortgage lending in April (see earlier post) indicates there could be further house price falls, according to accounting firm RSM UK.

Thomas Pugh, economist at RSM UK, explains:

‘The fact that net mortgage lending turned negative in April, contracting by £1.4bn, the lowest level on record excluding the pandemic suggests house prices have further to fall.

The small drop in mortgage approvals, partly reversing the rise in March, reinforces this message. Indeed, higher interest rates and falling real incomes will limit buyers ability to meet high prices. We expect a peak to trough fall in house prices of between 5% and 10%.

Nationwide’s house price data this morning showed UK house prices are 4% down from their peak last August, following the biggest annual drop since 2009.


The drop in eurozone inflation in May might not stop the European Central Bank continuing to raise interest rates.

Clémence Dachicourt, senior portfolio manager at Morningstar Investment Management, says the ECB has ‘further to go’ in its fight against rising prices:

“Whilst headline inflation numbers have benefited from a recent decline in energy and food prices over the recent months, the European Central Bank has further to go to bring inflation back to its 2% medium term target as core goods and services inflation remain stubbornly high.

In addition to underlying trends in inflation, the ECB will focus on incoming economic and financial data as well as the strength of its monetary policy transmission before it contemplates pausing its rate hiking cycle.”

#Eurozone #inflation fell more than expected in May on easing food and declining energy prices BUT core CPI also dropped. CPI slowed to 6.1% in May YoY vs +6.3% expected, tumbling from a 7.0% rise in April. Core CPI dipped to 5.3% in May vs 5.5% expected from 5.6% in Apr.

— Holger Zschaepitz (@Schuldensuehner) June 1, 2023

Eurozone inflation falls to 6.1%

Just in: Inflation across the euro area has dropped, helped by a fall in the price of energy.

Eurozone CPI inflation is expected to be 6.1% in May 2023, down from 7.0% in April, statistics body Eurostat has reported.

That takes annual inflation closer to the European Central Bank’s target of 2% – although prices are still rising three times as fast as the ECB is aiming for. In May alone, prices stagnated.

Food, alcohol and tobacco prices rose by 12.5% over the last year, down from 13.5% in April.

Industrial goods inflation slowed to 5.8% from 6.2% in April, while services inflation nuded down to 5.0% from 5.2%.

Energy prices fell by 1.7% compared with April 2022 – as the inflation data catches up with the surge in costs after Russia’s invasion of Ukraine. That’s down from a 2.4% rise in the year to April.

Euro area #inflation at 6.1% in May 2023, down from 7.0% in April. Components: food, alcohol & tobacco +12.5%, other goods +5.8%, services +5.0%, energy -1.7% - flash estimate

— EU_Eurostat (@EU_Eurostat) June 1, 2023

Encouragingly for the ECB, core inflation (stripping out energy, food, alcohol and tobacco) fell to 5.3%, from 5.6%.


Key event

European stock markets are rising from their lowest level in two months this morning.

The FTSE 100 index has gained 48 points, or 0.65%, to 7494, amid relief that the US House of Representatives passed a bill to raise the debt ceiling on Wednesday.

That paves the way for the US to lift the limit on its national debt and avoid a catastrophic default – although the bill still has to clear the Senate.

Germany’s DAX and France’s CAC are both up around 1%.

UK mortgage approvals fell as borrowers retrench

The number of mortgages being approved by UK lenders fell in April, new data from the Bank of England this morning shows.

There were 48,690 new mortgages signed off in April, down from 51,488 in March. That’s the lowest since February.

There were 48,690 mortgage approvals in the UK in April 2023 according to the Bank of England, which is 5.4% lower than in March, 26.0% lower than a year ago & 25.6% lower than the average number of mortgage approvals between 2018 & 2019.#ukhousing #housing

— Noble Francis (@NobleFrancis) June 1, 2023

The BoE also reports that homeowners made the biggest net repayment of mortgage debt on record – if you ignore the pandemic period.

That suggests the rise in interest rates is encouraging borrowers to pay down their mortgages.

The BoE says:

Borrowing of mortgage debt by individuals continued to decline from net zero in March to £1.4 billion of net repayments in April. This is the lowest level on record, if the period since the onset of the Covid-19 pandemic is excluded.

Emma Fildes, of property agency Brick Weaver, points out that the ‘effective’ interest rate paid my borrowers rose:

Mortgage debt & lending declines to record levels in April taking net borrowing of mortgage debt to its lowest level since April 1993 (exc pandemic) Borrowing of mortgage debt by individuals declined from net zero in March to £1.4bn of net repayments in April @bankofengland

— Emma Fildes (@emmafildes) June 1, 2023

As the “effective” interest rate rises 5 base points in April to 4.46. Net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April, while approvals for remortgaging increased slightly from 32,200 to 32,500 during the same period

— Emma Fildes (@emmafildes) June 1, 2023


UK factory output falls again

Just in: the UK’s manufacturing downturn deepened in May, at the fastest rate since January.

Purchasing managers at UK factories report that output, new orders and employment all contracted at a faster rate last month.

Manufacturers were hit by weak domestic market sentiment, lower new export order intakes and client destocking, which offset benefits from improving supply chains, data provider S&P Global has reported.

This pulled its manufacturing PMI index down to a four-month low of 47.1 in May, down from 47.8 in April but above the flash estimate of 46.9 reported during last month. Any reading below 50 shows a contraction.

The #UK manufacturing downturn deepened in May (#PMI at 47.1; Apr: 47.8) amid an acceleration in the rates of decline for output, new orders and employment. Elsewhere, input prices fell for the first time in three-and-a-half years. Read more: @cipsnews

— S&P Global PMI™ (@SPGlobalPMI) June 1, 2023


Summers: Brexit was historic economic error which pushed up inflation

Brexit was a “historic economic error” which has hurt the UK economy and helped to drive up inflation, Larry Summers, the former US Treasury secretary has warned.

Summers told Radio 4’s Today programme that UK economic policy has been “substantially flawed for some years,” and singles out the exit from the European Union as a factor driving up costs.

Asked why inflation in the UK is significantly higher than in the US, Summers explains:

I think Brexit will be remembered as a historic economic error that reduced the competitiveness of the UK economy, put downward pressure on the pound and upwards pressure on prices, limited imports of goods and limited in some ways the supply of labour.

All of which contributed to higher inflation.

Larry Summers on Today eviscerating Brexit and its dire effect on UK economy

— Caroline Kenyon (@C_Kenyon1) June 1, 2023

[The US consumer prices index fell to 4.9% per year in April, while UK inflation was 8.7%.]

Summers adds that the Bank of England also blundered, saying:

I think that was reinforced by very ill-judged monetary policies that were substantially too expansionary for too long.

[A report last week showed that Britain’s departure from the European Union has accounted for about a third of the increase in food bills for households since 2019, equivalent to about £250.]

Q: Is the chancellor right to say [last week] that if interest rates have to continue to rise for longer than people hope for, in the interest of bringing down inflation, that is a better thing to do?

Summers says it is better to stick with the unpalatable medicine of higher rates, rather than stopping the treatment too soon and risk “a recurrence of the underlying infection”.

Usually when you’re prescribed a course of medication, even if the drugs are not so pleasant themselves, and even if they possibly have some side effects, it’s usually better is to take the whole course of medicine, the first time it’s prescribed than to stop taking the medicine early.

Q: So we are heading for a recession in the UK (as some economists fear)?

Summers says he would be surprised if two more years passed without the UK entering into recession, but will leave forecasts to the UK experts.

Summers also warned that the US is on “an unsustainable borrowing trajectory”, which required a significant adjustment.

The US should increase its revenue base, Summers argues, so it can increase tax revenues. He also argues US spending should be contained, although that won’t be easy as national security and defence needs are rising, as is price of healthcare and education.


Chris Druce, senior research analyst at estate agent Knight Frank, says further interest rate increases will act as a ‘brake’ on the housing market:

“With fewer transactions at the start of the year due to the uncertainty caused by the mini-Budget, UK house price data has oscillated in recent months. However, today’s figures from Nationwide suggest that we’ve entered into a more stable period.

“There is still an element of price exploration playing out in the residential property market, as buyers and sellers adapt to the reduction in spending power that has occurred due to the significant increase in borrowing costs over the last 18 months.

“While an improved economic outlook and solid jobs market has supported buyer sentiment in recent months, and created an active spring sales market, further expected increases in borrowing costs after last week’s inflation figures will act as a brake.

“We expect this pressure, combined with an increase in supply relative to the pandemic period, will see UK property prices fall by a few percent this year.”

Biggest drop in annual house prices since 2009

The average UK house price recorded its biggest annual fall in nearly 14 years in May, today’s Nationwide house price data shows.

The 3.4% drop in annual house prices reported in May is the biggest drop seen since July 2009 when they fell by 6.2% – after the financial crisis hammered the property market.

Myron Jobson, senior personal finance analyst at interactive investor, says:

“The month-on-month increase in average house prices in April appears to have been a flash in the pan moment, with prices returning to its downward trend in May. This is symptomatic of a hiccupping market that is adjusting to a come down from the blistering pace of house price growth over the past few years.

“If topsy-turvy house prices haven’t made would-be buyers feel nervous about their prospects, recent changes in the mortgage marketplace might have. Concerns about how high interest rates will go to tackle stubborn and sticky inflation has seen the withdrawal 7% of mortgages from the market since last week, as leaders reassess their propositions. Meanwhile, average rates on two- and five-year fixed deals have also risen, which is the last thing would-be buyers who are pinching pennies to buy a property.

“While any fall in prices is good news for house hunters, it might not be enough to meaningfully offset the rising interest rate and its contribution to monthly mortgage payments. The stark reality is owning a home appears to be a distant dream for many, with high mortgage rate rates, high property prices and a higher cost of living, including climbing rents, making buying a home an increasingly difficult prospect.”


People walk past a Dr. Martens store in Manchester, Britain, May 26, 2023. REUTERS/Jason Cairnduff
A Dr. Martens store in Manchester, Britain, last month Photograph: Jason Cairnduff/Reuters

In the City, shares in footwear maker Dr Martens have dropped by around 10% after it reported a drop in profits and admitted it struggled in the US.

Dr Martens’ pre-tax profits slumped by 26% in the year to 31 March 2023, from £214.3m to £159.4m.

That’s despite a 10% rise in revenues, to just over £1bn for the first time.

The company says it had a strong performance in Europe, the Middle East and Africa, but a “softer performance in America”.

Kenny Wilson, Dr Martens’ CEO, explains:

“In America, against the backdrop of a challenging consumer environment, we made operational mistakes, such as the move to our LA Distribution Centre, and how we executed our marketing campaigns and ecommerce trading.

We have undertaken detailed reviews to understand why these issues occurred and have begun to embed the lessons learned into the business. We are fixing the issues in America, including a significant strengthening of the team there, and returning America to good growth is our number one operational priority.

Dr Martens says its planned price increases will cover supply chain cost inflation.

But profit margins are expected to be squeezed this year, with Dr Martens predicting that its EBITDA margin in the current financial year (FY 2024) will be 1-2%pts lower than FY23.

Jocelyn Paulley, retail partner at Gowling WLG, says bad weather, supply chain disruption and rising costs all hit the business:

“Dr Martens has experienced a mixed year, initially starting off on the right foot as it recovered from the pandemic with an uplift in revenue and the opening of 10 new stores. But, demand for its products has been impacted by cold weather deterring shoppers and with the summer period now beginning, consumers will be choosing alternative footwear. Other challenges for the brand have included supply chain disruption, especially in America which is its largest market, as well as rising costs.

“Shareholders will remain upbeat for the future as the company’s strong brand heritage and reputation means it can always attract a loyal custom base. Moreover, earlier this year, CEO Kenny Wilson announced a collaboration into the second-hand clothing market as demand surges for refurbished and sustainable fashion, which will help to keep the business a step ahead of competitors in an ever changing retail sector.”

The EY Item Club economic forecasters agree that the UK housing market will come under more pressure this year, due to higher interest rates.

Martin Beck, chief economic advisor to the EY ITEM Club, points out that many borrowers on fixed-term mortgages have not yet moved onto new, higher, mortgage rates yet.

Beck says:

  • Although Nationwide’s measure of house prices fell in May, a 0.1% month-on-month decline was small and points to values resisting a serious correction, despite rising mortgage rates. The dominance of fixed-rate mortgages and the sizeable savings built up by households during the pandemic is probably helping. However, with the Bank of England likely to continue raising interest rates, house prices are likely to continue drifting down.

  • The market is not out of supports. Strong growth in cash pay has pushed down the ratio of house prices to earnings, unemployment is still very low and consumer confidence has picked up. And rises in rent costs may support demand from first-time buyers.

  • However, the chief headwind facing the housing market is likely to intensify. Previous rises in interest rates have yet to feed through in full to existing borrowers. And stickiness in underlying inflation means the Bank of England is likely to raise rates beyond what many were expecting only recently. This would add to what has already been a significant rise in mortgage rates over the last 12 months and compound a still-challenging outlook for household finances.

There are signs that activity in the housing market picked up last month.

Matt Thompson, head of sales at London-based estate agent Chestertons, reports:

“We registered more sellers listing their home for sale in May, which provided buyers with a more varied selection of properties.”

The cost of living squeeze is pushing down on house prices, reports Jeremy Leaf, a north London estate agent:

‘Continuing worries about the cost of living highlighted in the recent core inflation numbers are compromising confidence and having a knock-on effect on mortgage cost and availability, inevitably leading to a softening of property prices.’

But despite the pressures on the housing market, Nationwide remains hopeful that the UK will avoid a housing crash.

Robert Gardner, Nationwide’s chief economist, says “a relatively soft landing remains the most likely outcome”.

Why? Because labour market conditions remain solid and household balance sheets appear in relatively good shape, they say.

Gardner adds:

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

Nationwide: Headwinds to the housing market set to strengthen

With the Bank of England expected to keep raising interest rates, the housing market will come under more pressure, Nationwide warns.

The financial markets currently predict Bank Rate could be near 5.5% by the end of this year, up from 4.5% today, due to the UK’s persistently high inflation.

This prompted some mortgage providers to reprice their mortgage offers – as Nationwide did last week.

Chief economist Robert Gardner says this will add to pressures, on top of May’s 3.4% annual drop in house prices.

“Headwinds to the housing market look set to strengthen in the near term.

While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected. As a result, investors’ expectations for the future path of Bank Rate increased noticeably in late May, suggesting it could peak at c5.5%, well above the c4.5% peak that was priced in around late March. Furthermore, rates are also projected to remain higher for longer.

A chart showing implied path of UK interest rates
A chart showing implied path of UK interest rates Photograph: Nationwide

Gardner warns that this could push up mortgage rates:

“If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-Budget in September last year.

A chart of 5-year mortgage rates
A chart of 5-year mortgage rates Photograph: Nationwide

Introduction: UK house prices fell 3.4% in May in annual terms

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house prices have dropped again on an annual basis, and rising mortgage rates could put more pressure on the market in the months to come.

Nationwide reports this morning that the average price of houses sold in May were 3.4% lower than a year ago, down from the 2.7% fall recorded in April.

In May alone, prices slipped by 0.1% on a seasonally-adjusted basis, partly reversing April’s 0.4% rise.

The average price was £260,736 in May, reports Nationwide, who predict activity is likely to remain subdued in the near term.

Aprils house price reprieve is short lived as annual house prices in May 2023 “slipped” back -3.4% & -0.1% on last month to £260,736. With further interest rate turbulence predicted in the short term expect growth to slip further before stagnating for longer @AskNationwide

— Emma Fildes (@emmafildes) June 1, 2023

The broader picture is that average house prices are around 4% below their peak last summer, just before the mini-budget rocked the markets and drove up mortgage rates.

Robert Gardner, Nationwide’s chief economist, explains:

“Following tentative signs of improvement in April, annual house price growth softened again in May, falling back to -3.4% (from -2.7% in April).

However, this largely reflects base effects with prices broadly flat over the month after taking account of seasonal effects. Average prices remain 4% below their August 2022 peak.

“Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels.

A chart showing mortgage approvals

The Bank of England will release new mortgage approvals and consumer credit data this morning, giving an insight into the health of the property market.

More details and reaction to follow….

Also coming up today

We also get healthchecks on factories across the eurozone, in the UK and in the US. Last week’s ‘flash readings’ showed that manufacturing in France and Germany was weak, so today’s readings could reinforce recession worries.

At lunchtime, a new survey of job creation across America will be released, which could indicate how the main US jobs report, Friday’s Non-Farm Payroll, will unfold.

Investors are also keen to see May’s eurozone inflation report, which may give hints as to whether the European Central Bank could stop raising interest rates soon.

Eurozone inflation is expected to have fallen, from 7% to 6.3%, after drops in Germany, France, Italy and Spain earlier this week. But core inflation could be stickier, posing problems for central bankers.

The agenda

  • 7am BST: Nationwide house price index for May

  • 9am BST: Eurozone manufacturing PMI report for May

  • 9.30am BST: UK manufacturing PMI report for May

  • 9.30am BST: UK mortgage approvals and consumer credit data

  • 10am BST: Eurozone flash inflation reading for May

  • 12.30pm BST: European Central Bank releaases accounts of its latest meeting

  • 1.15pm BST: ADP national employment report of US private sector jobs creation

  • 1.30pm BST: US weekly jobless claims figures

  • 3pm BST: US manufacturing PMI report for May



Graeme Wearden

The GuardianTramp

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