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Sinking Island

UK economy shrunk

Image source: Julinzy, VectorShop, Maximumm, Joel Calheiros, Graphiteska, Phonlamai Photo - Shutterstock

What's going on?

According to fresh data released on Monday, the UK’s manufacturing output in April fell by the most in over 17 years – and the British economy shrank (tweet this).

What does this mean?

British manufacturing production in April fell by 3.9% compared to March – and Brexit was partly to blame. With the UK initially planning to leave the European Union in March, companies stockpiled goods in anticipation of potential supply shortages, helping the manufacturing sector to pick up steam earlier in the year. But with Brexit delayed until October, companies now appear to be using up their existing supplies rather than ordering more. And carmakers’ planned shutdowns to mitigate potential Brexit disruptions caused a 24% downshift in April’s vehicle output. That helped the UK economy overall to shrink by 0.4% in April compared to March – its biggest monthly drop in three years.

Why should I care?

For markets: Pound not so sterling.

Investors sold the British pound – likely as Monday’s data showed the economy faltering. When an economy isn’t doing well, investors tend to ditch its currency and buy into comparably safer economies instead – like the US, by way of the dollar. On the other hand, a cheaper pound should make UK stocks more attractive to foreign buyers, encouraging investment as their dollars, euros, or yuan go further – which may partly explain why UK stocks rose overall on Monday.

Zooming out: Nosediving into the UK.

Fosun Tourism Group – the Chinese owner of all-inclusive vacation operator Club Med – has approached troubled travel company Thomas Cook (the world’s oldest) with a takeover offer, putting its yuan to work. Thomas Cook has warned thrice of falling profit in the last year, and its shares have descended more than 85%. Fosun is already its biggest shareholder and would take over Thomas Cook’s tour business – leaving its airline open to another buyer, as European rules prohibit Fosun from flying Thomas Cook’s wings too.

Originally posted as part of the Finimize daily email.

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