Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Evidence is mounting that Donald Trump’s trade war is disrupting manufacturing activity around the globe.
China’s manufacturing activity in May shrank at its fastest pace in two and a half years, according to the latest survey data, as firms were hit by a fall in new orders, and weaker export demand.
The Caixin/S&P Global manufacturing purchasing managers’ index, released this mornng, fell to 48.3 in May, down from 50.4 in April. Any reading below 50 shows a contraction, and this is the lowest reading since September 2022.
During April, the US and China imposed tit-for-tat tariffs on each others exports, resulting in triple-digit levies, beforethe two sides reached a deal on 12 May to lower those tariffs to 10% for 90 days.
Today’s PMI report indicates the Trump trade war hurt demand.
Dr. Wang Zhe, senior economist atCaixinInsightGroup, explains:
Yesterday, a survey of US factories also showed a drop in production last month, with several manufacturers blaming tariffs for pushing up prices and hitting demand.
That helped to push the US dollar close to a three-year low against a basket of other currenciess.
8am BST: OECD begins Ministerial Council Meeting in Paris
8am BST: OECD to release latest global economic outlook
10am BST: Eurozone inflation flash reading for May,
10.15am BST: UK Treasury committee hold hearing with Bank of England policymakers
Newsflash: Global growth will slow this year as Donald Trump’s trade wars hit the world economy, a new report says.
TheOrganisation of Economic Cooperation and Development (OECD)has cut its forecasts for growth in 2025 and 2026, and warned that the global outlook is becoming “increasingly challenging”.
TheOECDnow predicts that global GDP growth will slow from 3.3% in 2024 to 2.9% this year and in 2026, “on the technical assumption that tariff rates as of mid-May are sustained despite ongoing legal challenges”.
In its latest global economic outlook, just released, the Paris-based thinktank explains:
Back in March, theOECDhad predicted that global GDP growth would slow to 3.1% in 2025, and then to 3.0% in 2026.
Today, it warns that global trade growth is likely to slow substantially over the next two years, after a burst of activity earlier this year as firms tried to stock up on goods ahead of tariff increases.
Here are theOECD’slatest growth forecasts:
Uncertainty is expected to hold back business investment, theOECDadds.
It fears that further increases or swift changes in trade barriers could intensify the growth slowdown and trigger significant disruptions in cross-border supply chains, and that the tariffs could push up inflation expectations, leading to higher interest rates and lower growth.
But on the upside, a reversal of the increase in trade barriers would support growth and reduce inflation, theOECDadds.
Thames Water don’t disclose why KKR chose to walk away from talks to inject desperately needed fresh equity into the company.
Two weeks ago, Bloomberg reported thatKKR’sproposal involved slashing about £8bn of Thames Water’s debt. The US investment group had been chosen by Thames to lead the company’s turnaround after it offered to put £4bn into the company.
Negotiations with regulator Ofwat had been expected to run throughout June, so today’s news thatKKRhave walked away is a surprise….
The slump in China’s manufacturing PMI (see opening post) is “a canary in the trade war coal mine,” saysStephen Innes,managing partner atSPI Asset Management.
The poor bird’s feathers have been “scorched by tariffs and global uncertainty”, Innes reports, explaining:
Elsewhere in the water industry, a new report has warned that the water sector in England and Wales needs a “fundamental reset”.
Inan interim reportpublished on Tuesday, theIndependentWaterCommissionsays the water sector has been beset by “deep-rooted, systemic” failures.
The Commission says wide-ranging and fundamental change is needed in five areas – including clearer direction from government, stronger regulation of water companies, bringing decisions on water systems closer to local communities, and greater focus on responsible, long-term investors.
The report also singles out regulation, saying that Ofwat needs to embrace a “supervisory approach”, so it can intervene early before problems arise. The current model relies heavily on ‘comparability’ – benchmarking companies against one another to assess efficiency and justify customer bills, the Commission says.
Independent Water Commission chairmanSirJonCunliffesaid he had heard a “strong and powerful consensus” that the system was not working for everyone.
Cunliffe:
Newsflash: Thames Water’s efforts to avoid nationalisation have taken a blow.
US investment firmKKRhas walked away from the chance to take a stake in the troubled water utility, putting its future in fresh doubt.
Thameshad selected KKR as a “preferred partner” at the end of March, as it looked for a partner to take a stake in its business.
But today,Thamestold the City that KKR has indicated that it will not be in a position to proceed, and its preferred partner status has now lapsed.
Sir Adrian Montague,Chairman ofThames Water, says:
Thames, which is struggling under a debt pile of close to £20bn, also says that “certain senior creditors” have been working on alternative transaction structures to seek to recapitalise the business. It will now “progress discussions on the senior creditors’ plan with Ofwat and other stakeholders,” it says.
If a deal can’t be reached, and Thames falls into bankruptcy, then the company could be takenn into a special administration regime by the UK government.
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Evidence is mounting that Donald Trump’s trade war is disrupting manufacturing activity around the globe.
China’s manufacturing activity in May shrank at its fastest pace in two and a half years, according to the latest survey data, as firms were hit by a fall in new orders, and weaker export demand.
The Caixin/S&P Global manufacturing purchasing managers’ index, released this mornng, fell to 48.3 in May, down from 50.4 in April. Any reading below 50 shows a contraction, and this is the lowest reading since September 2022.
During April, the US and China imposed tit-for-tat tariffs on each others exports, resulting in triple-digit levies, beforethe two sides reached a deal on 12 May to lower those tariffs to 10% for 90 days.
Today’s PMI report indicates the Trump trade war hurt demand.
Dr. Wang Zhe, senior economist atCaixinInsightGroup, explains:
Yesterday, a survey of US factories also showed a drop in production last month, with several manufacturers blaming tariffs for pushing up prices and hitting demand.
That helped to push the US dollar close to a three-year low against a basket of other currenciess.
8am BST: OECD begins Ministerial Council Meeting in Paris
8am BST: OECD to release latest global economic outlook
10am BST: Eurozone inflation flash reading for May,
10.15am BST: UK Treasury committee hold hearing with Bank of England policymakers