The Tata steel plant in Port Talbot, south Wales. The PMI numbers reflect official data suggesting industrial production slowed towards the end of the second quarter. Andy Rain / EPA
The Tata steel plant in Port Talbot, south Wales. The PMI numbers reflect official data suggesting industrial production slowed towards the end of the second quarter. Andy Rain / EPA

UK manufacturing activity contracts at fastest pace in over three years



British manufacturing shrank at its fastest pace in more than three years in July, a survey showed on Monday, adding to signs that the country’s vote to leave the European Union is hurting growth.

The data could give the Bank of England (BoE) more impetus to cut interest rates on August 4, after it surprised markets by holding fire in July but said most of its policymakers were leaning towards stimulus in August.

The Markit/CIPS UK manufacturing purchasing managers’ index (PMI) fell to 48.2 in July from 52.4 in June, its lowest since February 2013 and below an initial “flash” reading reported in late July of 49.1.

Measures of output and new orders fell below the 50 mark that denotes growth for the first time since early 2013 due to weaker market conditions at home and uncertainty related to the EU referendum.

The output index fell to 47.8 in July from 53.6 in June, its lowest since October 2012, while new orders – which grew robustly in June – suffered their sharpest turnaround since 1998 and fell at their fastest rate in over three years.

“The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers,” said Rob Dobson, a senior economist at Markit, which compiles the survey.

“On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded.”

All but three of 49 economists polled expect the BoE to cut interest rates by at least 25 basis points on August 4, but economists were divided on whether the Bank would restart its bond-buying programme.

The BoE will have to be careful to balance any hit to growth with rising price pressures, which were already evident in the PMI manufacturing survey.

Average purchase prices rose at their fastest pace in five years, with companies citing higher commodity prices and higher import prices, the latter resulting from the weaker currency. Sterling fell to a 31-year low against the US dollar after the Brexit vote but has recovered some of that ground since.

Output price inflation was also the highest in nearly two years.

But the boost to exports from a weaker pound was less marked than previously estimated, Mr Dobson said. A measure of new export orders slowed in July after hitting a seven-month high in June.

The PMI numbers were broadly in keeping with official data suggesting industrial production slowed towards the end of the second quarter after a strong April.

Data covering the post-Brexit period has been scarce so far. But there are signs consumer confidence is struggling, while Markit said its earlier one-off “flash” PMI surveys were consistent with the economy shrinking by a quarterly 0.4 per cent if they persisted.

British finance minister Philip Hammond downplayed the flash PMI numbers saying they were a measure of sentiment and not of “hard activity”.

But the numbers were enough to sway BoE policymaker Martin Weale, who more recently had been on the hawkish side of the rate-setting committee, to view the economic outlook “rather differently” he said.

The PMI manufacturing survey is based on responses from purchasing executives at over 600 companies to questions on whether business conditions improved, deteriorated or stayed the same compared with the previous month.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Essentials

The flights

Emirates and Etihad fly direct from the UAE to Geneva from Dh2,845 return, including taxes. The flight takes 6 hours. 

The package

Clinique La Prairie offers a variety of programmes. A six-night Master Detox costs from 14,900 Swiss francs (Dh57,655), including all food, accommodation and a set schedule of medical consultations and spa treatments.

Other workplace saving schemes
  • The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
  • Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
  • National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
  • In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
  • Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
 
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
 
Round 3: February 7-9, Dubai Autodrome – Dubai
 
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
 
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
THE LIGHT

Director: Tom Tykwer

Starring: Tala Al Deen, Nicolette Krebitz, Lars Eidinger

Rating: 3/5