Bloomberg News - What Brexit Means for the UK's 15 Largest Trading Partners

The June 23 U.K. vote to leave the European Union shook the financial world: the pound plunged to a more than 30-year low versus the dollar, investor confidence collapsed and talk turned to London losing its place as Europe's financial capital. Economists expect U.K. economic growth to take a 2 percent combined loss in 2016 and 2017, and those with close ties to the U.K. won't fare much better.

Growth will be hit for virtually all of Britain's most important trading partners over the next few years, according to Bloomberg's economic surveys. The worst affected will be across-the-pond in Ireland, which has seen a combined 0.9 percentage point shaved off its 2016 and 2017 Bloomberg consensus GDP forecasts in the five weeks since the Brexit vote. The euro area, which shares $472 billion in trade with the U.K., has seen its growth forecast for the next two years fall by 0.5 percentage point since June 23. 

The U.K.'s largest single-country trading partner, Germany, is expected to grow 1.5 percent this year and 1.3 percent next year, down a combined 0.5 percentage point since the Brexit vote. Other EU country forecasts have been similarly revised down as concern mounts that more referendums about EU membership could spur another euro area crisis.

"We believe this risk is very real, " Barclays strategists, including Ajay Rajadhyaksha, wrote in a note this month to clients. "Anxiety over immigration and a weak economic recovery appear to have significantly eroded pro-EU sentiment in the euro area."

Economists have cited various reasons for downgrading growth forecasts for countries with close links to the U.K., including expectations of decreased trade with EU countries, the risk of anti-EU contagion to other member nations, and the effect of general uncertainty about how the negotiations to leave will play out.  The International Monetary Fund this month cited Brexit as a factor for lowering its global growth forecast, saying the effects will be concentrated in advanced European economies with minimal impact on other nations, including the U.S.

Asian countries may only see a minimal Brexit effect on their growth forecasts. Japan's 2016 growth forecast was cut by just 0.1 percentage point since the vote and it, along with China, Britain's third-biggest trading partner, has actually seen a boost to its outlook for next year. China may ultimately overcome any headwinds through its own strong economic performance, according to Barclays. The London-based bank lowered its 2017 forecast for China to 5.5 percent from 5.8 percent following the Brexit vote, only to increase it again to 5.7 percent July 15 after the country reported strong second-quarter growth.

BBC News - Fed keeps US rate hike on hold

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The Federal Reserve has decided not to raise interest rates, maintaining the ultra-low level they have been at since December 2015.

The US central bank opted to keep rates between 0.25% and 0.5%.

The Fed said "near-term risks to the economic outlook have diminished," but inflation remained below the bank's target.

It is still expected to raise rates twice this year. Investors expect the first increase to come in autumn.

In a statement, the Federal Open Market Committee (FOMC) said household spending was "growing strongly" and the unemployment rate had decreased for the last two months.

However, the Fed has held back from raising rates while inflation remains under its 2% target. The measurement used by the central bank lists current US inflation at 1.6% and it has hovered below the Fed's target since 2012.

The committee blamed low energy prices for weighing on inflation.

'Reasonably upbeat'

Investors had not been expecting the Fed to raise rates but had been looking for indications about the timeline for increases.

"[The statement] sounded a reasonably upbeat tone, not a big difference from last time, but a reasonably upbeat tone," said Kathy Jones, chief fixed-income strategist at Charles Schwab.

Global market uncertainty, stemming from the UK's decision to leave the European Union, led the central bank to refrain from increasing rates when it met in June. In the past slow economic growth in Europe and uncertainty about the Chinese economy have forced the Fed to delay a interest rate increase.

Speaking in advance of the 'Brexit' vote, Federal Reserve chair Janet Yellen said that if the UK decided to leave the European Union it could have "significant economic repercussions" for the US economy.

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Image captionFederal Reserve chair Janet Yellen warned before the referendum that Brexit could have "significant economic repercussions"

US markets have shrugged off the initial shock of the Brexit decision, repeatedly hitting record highs and figures show the economy has improved at a moderate pace.

Only one member of the FOMC voted to raise rates.

Esther George, who leads the Kansas City Federal Reserve, has voted to raise rates several times in the past and said publicly she feels the central bank is being too cautious.

The Fed meets three more times this year and is not expected to raise rates in November because the meeting is just one week before the US presidential election.

FOMC members have acknowledged that the election has added a level of uncertainty to the US economy.

Most analysts expect an increase at its next meeting in September.

Bloomberg News - U.K. Approves London City Airport’s $450 Million Expansion

The U.K. government approved the expansion of London City Airport -- a project held up by former Mayor Boris Johnson -- as new Chancellor of the Exchequer Philip Hammond looks to underline the city’s role in the global economy in the aftermath of Britain’s vote to exit the European Union.

The 344 million-pound ($450 million) plan for the inner-city airport in London’s former docklands had been delayed by Johnson’s objection to the purchase of land needed for the expansion. Sadiq Khan, who took over as mayor after an election in May, gave approval to the project in his second week in office.

The airport will build new aircraft parking spaces, expand the existing terminal capacity and add a new aircraft taxiway, enabling more modern and larger aircraft to operate and adding to connections between the U.K. capital and mainland Europe.

“Making it easier to visit and do business in the City of London will help drive forward our economy and further strengthen the city’s status as the world’s leading financial center,” Hammond said in a statement. “London City Airport’s ambitious growth plans will boost international connections, strengthening the City of London’s links to destinations across the world.”

Heathrow or Gatwick?

The government announced its decision Wednesday even though Parliament has already broken until September for its summer recess. New Prime Minister Theresa May’s administration is due to decide after the recess whether to build an additional runway at either of London’s two main airports -- Heathrow or Gatwick.

Johnson, now foreign secretary in May’s government, opposes both options, having campaigned for a new hub airport in the Thames estuary, while Khan, from the opposition Labour Party, backs expanding Gatwick. May’s electoral district is under the Heathrow flight path.

Though City has increased its passenger tally by 50 percent in the past five years and is the closest terminal to the U.K. capital’s financial center, it’s a fraction of the size of Britain’s leading hubs and is limited in its growth prospects by its existing runway that can’t take full-size jets.

As part of Wednesday’s announcement, London City will spend 2.6 million pounds on new rolling stock for the Docklands Light Railway, which connects the business district to the airport in under 25 minutes, and improve access by bus and taxi.

The airport was sold by its former U.S. owners in February to a Canadian consortium of Alberta Investment Management Corp., Ontario Teachers’ Pension Plan and the Ontario Municipal Employees Retirement System. A bidding war led to a price tag of about 2 billion pounds, people familiar said at the time.

BBC News - UK explores multi-billion pound free trade deal with China

Chancellor Philip Hammond has begun discussions with China on an ambitious free trade deal which could see greater access for major Chinese banks and businesses to the UK economy.

The Chancellor told the BBC it was time to explore "new opportunities" across the world, including with China, one of the UK's biggest inward investors.

That is despite a short term economic shock from leaving the European Union.

He added that the EU is not in "punishment mode" over the Brexit vote.

"What we now need to do is get on with it in a way that minimises the economic impact on the UK economy in the short term and maximises the benefit in the long term," Mr Hammond said, admitting that there had been "global disappointment" about the Brexit vote.

Chinese state media reported earlier in the month that the Chinese Ministry of Commerce wants to do a UK free trade deal.

Mr Hammond has now revealed that Britain is also keen.

It will be the first time the UK has embarked on such a major project with the second largest economy in the world.

And will raise concerns about cheap manufactured goods entering the UK more easily.

'More opportunity'

In return for greater access to the UK for its manufactured products and investment, China would reduce barriers to Britain's service industries like banking and insurance as well as UK goods.

That would be an important source of export income for Britain.

"The mood music that I have heard here is very much that this will mean more opportunity for countries like China that are outside the European Union to do business with Britain," Mr Hammond said.

"And as Britain leaves the European Union and is not bound by the rules of the European Union perhaps it will be easier to do deals with Britain in the future."

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Image captionPhilip Hammond met Chinese vice premier Ma Kai in Beijing before the G20 summit

I asked if that could mean a free trade deal, bilaterally agreed with China which invested over $5bn (£3.8bn) in the UK in 2014.

"Definitely I could see such a thing," Mr Hammond told me at the meeting of G20 finance ministers in Chengdu, China.

"We already have a strategic partnership with China.

"We have hugely increased our trade with China, investment both by British companies into China and by Chinese entities into the UK.

"That's about as far as we can go while we are members of the European Union.

"But once we are out of the European Union then I have no doubt on both sides we will want to cement that relationship into a firmer structure in a bilateral way that's appropriate.

"That's something we will have to explore in the future."

'Steel dumping'

Mr Hammond said it would be "certainly appropriate" to start discussing a new deal over the next "couple of years" and the issue was raised here at Chengdu.

What might a deal - which could only come after Britain had officially left the EU - look like?

Senior government sources have told me that officials are looking at New Zealand's free trade agreement with China which took four years to negotiate and came into effect in 2008.

Care would have to be taken over security concerns and the possibility of China "dumping" cheap imports in the UK - for example steel.

'Punishment mode'

As well as a positive reaction from China, Mr Hammond said that he did not believe that the EU was trying to teach the UK a lesson over the Brexit vote by making negotiations over trade difficult.

"I don't think they are in punishment mode," he said.

"This is a meeting of finance ministers and central bank governors and, as you would expect, they are very much focused on the economic challenges and the economic prizes available.

"I have no doubt that everyone would want to see a very close relationship between the UK and the EU going forward because that will be good for the economies of the European Union and the economy of the UK.

"The challenge for us is to make sure that other politicians who are not so narrowly focused on the economic agenda also share that view and recognise that it is important not just for Britain but for Europe as well that we continue working closely together."

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Image captionThe government hopes a final deal for the new Hinkley Point nuclear plant will be ready soon

No project better sums up how investment in major infrastructure projects is now a global issue than Hinkley Point, the £18bn plan for a new nuclear power station in Somerset backed by France's EDF energy company and one of China's main nuclear suppliers.

Mr Hammond said that the government still supported the project, and that a final agreement would be signed "hopefully over the next few days" after an EDF board meeting to agree the details.

At the G20 many countries are now moving into practical mode - the Chancellor campaigned against leaving the EU and China argued against it, but Mr Hammond has clearly signalled that is now a matter for the history books.

The British public have spoken.

The present challenge is seeing how the fifth largest economy in the world can take advantage of that decision, rebuilding a "close" trading relationship with the EU and new economic relationships with countries, like China, which, it should be remembered, has never had a free trade agreement with any EU country

Reuters News - U.S. praises confidence-building measures with Chinese military

U.S. National Security Adviser Susan Rice (L) shakes hands with Chinese State Councilor Yang Jiechi as she arrives for a meeting at the Diaoyutai State Guesthouse in Beijing, China July 25, 2016.

The U.S. and Chinese militaries have reduced the risk of encounters between them having "unintended consequences", a top U.S. official said on Monday, while China reiterated it would not accept interference in the South China Sea.

There have been a series of incidents in recent years, most in the disputed South China Sea, where the United States has accused Chinese military ships and aircraft of coming dangerously close to U.S. forces.

Visiting U.S. National Security Adviser Susan Rice said confidence-building measures had reduced risks and the United States valued progress in improving military-to-military ties.

"Our military leaders communicate more frequently and more directly than ever before in the past," Rice said in a meeting with a vice chairman of China's powerful Central Military Commission, Fan Changlong.

"While our forces operate in closer proximity to each other, the risk of unintended consequences has gone down thanks to the confidence-building measures that our two sides have put in place."

The United States and China have increasingly been at odds over China's claims to most of the South China Sea, a waterway through which $5 trillion of trade moves annually, where the United States has sought to assert its right to freedom of navigation.

China has stepped up its rhetoric in defense of its claims since an international court ruled this month that China did not have historic rights to the waters, raising concern that China would assert its position more forcefully.

There have been two close contacts between the two militaries since last month alone, with the U.S. accusing China of shadowing an aircraft carrier in the South China Sea and of unsafely intercepting a spy plane in the East China Sea, where China has competing territorial claims with Japan.

China said it was conducting routine operations in line with laws and rules.

Fan also emphasized the need to deepen military-to-military relations with the United States to "avoid misunderstanding and miscalculation".

But he also dismissed any notion that China would bow to pressure when it came to protecting its national sovereignty in the South China Sea.

"The Chinese people will not yield to outside pressure," he said, the defense ministry said in a statement after the meeting.

Fan said relations between their militaries faced "obstacles and challenges", which, if not properly handled, would "disturb and undermine" progress.

He said the deployment of an anti-missile system in South Korea would impact mutual trust. The United States is deploying the system in South Korea to protect it from North Korea.

(Reporting by Jake Spring; Editing by Ben Blanchard, Robert Birsel)

BBC News - Brexit plunges UK economy to worst level since 2009, data suggests

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Britain's decision to leave the EU has led to a "dramatic deterioration" in economic activity, not seen since the aftermath of the financial crisis.

Data from IHS Markit's Purchasing Manager's Index, or PMI, shows a fall to 47.7 in July, the lowest level since April in 2009. A reading below 50 indicates contraction.

Both manufacturing and service sectors saw a decline in output and orders.

However, exports picked up, driven by the weakening of the pound.

The report surveyed more than 650 services companies, from sectors including transport, business services, computing and restaurants.

It is the first significant set of data measuring business reaction to the result of the UK referendum.

"Given the record slump in service sector business expectations, the suggestion is that there is further pain to come in the short-term at least."

Mr Williamson added that the economy could contract by 0.4% in the third quarter of this year, but that would depend on whether the current slump continued.

"The only other times we have seen this index fall to these low levels, was the global financial crisis in 2008/9, the bursting of the dot com bubble, and the 1998 Asian financial crisis," he told the BBC.

"The difference this time is that it is entirely home-grown, which suggest the impact could be greater on the UK economy than before."

"This is exactly what most economists were saying would happen."

Analysis: Andrew Walker, BBC World Service economics correspondent

The figures in PMI surveys are taken seriously by economists as early warning signs of what is in the pipeline. When there is a downturn, the PMIs generally tell the same story.

So this is a troubling set of results. But it is just one month's worth. It is possible that this is a "shock-induced nadir", as the chief economist at the firm who conducted the survey put it, and that the economy will right itself in the coming months.

In addition, the financial markets have stabilised and in some areas rebounded, in an adjustment after the vote that was described by the IMF as severe but generally orderly.

That said, the survey results do increase the chances of some action from the Bank of England, perhaps an interest rate cut in August, or perhaps even some additional spending plans in the Chancellor's Autumn Statement.

'Heading for recession'

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures provided the "first major evidence that the UK is entering a sharp downturn".

Although he added that the "confidence shock from the Leave vote might wear off over the coming months".

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Image captionChancellor Philip Hammond said during a visit to Beijing he might 'reset fiscal policy'

Neil Wilson, markets analyst at ETX Capital, said he thought the UK was "heading for a recession again", and that the data would almost certainly prompt the Bank of England to roll out further stimulus.

The pound has fallen in response to the publication of the data.

The PMI figures come hours after the UK's new chancellor, Philip Hammond, said he might "reset" Britain's economic policy.

Mr Hammond said on Friday: "Over the medium term we will have the opportunity with our Autumn Statement, our regular late year fiscal event, to reset fiscal policy if we deem it necessary to do so in the light of the data that will emerge over the coming months."

'No surprise'

While IHS Markit's reading on the UK economy was worse than most analysts expected, its verdict on the wider eurozone economy was more cheery.

Although business confidence dropped to an 18-month low, the overall pace of economic growth was in line with pre-Brexit trends, and employment across the eurozone rose.

The optimistic outlook is in line with comments by made by the president of the European Central Bank (ECB), Mario Draghi, who said on Thursday that Europe's financial markets had "weathered" the uncertainty caused by the vote.

Europe Economics' Andrew Lilico, who argued during the referendum campaign that leaving the EU would be beneficial for the UK in the long term, told the BBC the PMI data was "no surprise", and that it "doesn't tell us much about what Brexit's longer term impact will be".

Mr Lilico says he always expected a short term reaction, and those who voted to leave, "expected a short term slowdown too".

The downturn, he added, was "associated with risks in the global economy," as well as Brexit.

Reuters News - German firms hold off UK investments ahead of Brexit talks

Some German companies are holding off making investments in Britain until they know more about the relationship the country will forge with the rest of Europe following the Brexit vote.

While big companies like Siemens (SIEGn.DE) and Bosch have the deep pockets to take a longer-term view about one of Europe's most lucrative markets, and weather uncertainty about how the divorce will play out, smaller firms are more cautious.

Britain is a major market for Germany, accounting for around 7 percent of its exports, and is likely to remain so regardless of Brexit. But Germany's VDMA association, which represents thousands of firms in the engineering industry, said many of its members were unwilling to make any financial commitments.

"Companies want to continue to do good business in Britain and most are likely now waiting to see how the exit negotiations go, once they start," said its head Thilo Brodtmann.

Family-owned industrial manufacturer Kemper, for example, has shelved plans to expand its British business.

Before the Brexit vote the company, which makes air filter systems and fume extraction units for the car and construction industries, had planned to invest in its UK marketing and servicing operations this year.

"We definitely won't do that now," CEO Bjoern Kemper told Reuters from his office in Vreden, close to the Dutch border in the state of North Rhine-Westphalia.

He said Kemper's British sales have fallen this year, partly because customers had put off spending decisions ahead of the June 23 referendum, and that he saw little prospect of a rebound in the short term following the decision to leave the EU.

The company, which has overall annual turnover of about 40 million euros ($44 million), said it expects to lose around 1 million euros in UK sales this year as a result of economic uncertainty before and after the Brexit vote.

COMPLEX TALKS

Little is clear about how Brexit will affect the British and German economies.

The Bank of England said on Wednesday it saw "no clear evidence" that a sharp economic slowdown was yet under way in Britain after last month's vote, though there were signs investment and hiring were being put on hold.

New Prime Minister Theresa May says her government is formulating its position for talks that will determine the country's relationship with the EU, and has appealed for time to work out how best to approach the complex Brexit negotiations.

British officials have stressed they believe investment will flow again once foreign businesses can see how Britain's post-Brexit ties with the EU are starting to shape up.

"People are not disinvesting, they are just on hold ... if by December or March they can see a decent landing point, they'll move ahead again," one senior economic official told Reuters.

Kemper is more exposed to Britain than most German companies, with the country accounting for a tenth of its turnover, but its experience nonetheless reflects some of the challenges the Brexit vote poses to Germany's economy.

In the first five months of 2016, German exports to Britain stagnated on the year, official data shows. The slowdown contrasts sharply with last year, when German shipments to Britain surged almost 13 percent to just under 90 billion euros, a record for German exports to Britain.

In 2015, Germany sold more goods only to the United States and France.

The VDMA engineering association said German exports from the sector to Britain fell by 4.2 percent in the first quarter, year-on-year.

In a further sign that political uncertainty has harmed economic ties, German foreign direct investment to Britain fell 6 percent on the quarter in the first three months of 2016, Bundesbank data show.

Markus Kerber, managing director of the BDI Federation of German Industries, told Reuters it expected a significant deterioration in economic relations with Britain in the coming months. "When it comes to new German foreign direct investment, it's looking bad," he said.

MARKET ACCESS

The immediate uncertainty is perhaps less problematic for big companies whose size and financial muscle allows them to plan further ahead.

Siemens said late last month that it was not scaling back investment in a British wind power factory due to go into production in a few months.

German car parts maker Bosch [ROBG.UL], which employs 5,300 people in UK factories, told Reuters last week that it was sticking to its plans and intended to invest 20-25 million euros in Britain this year, about in line with last year.

Much of the negotiations between London and Brussels, when they come, are likely to boil down to a trade-off between Britain's controls on immigration and its access to the EU single market. Tougher immigration controls will likely mean less market access.

Reduced market access for Britain could be damaging for trade flows between Britain and the EU. However, some German companies could profit from such a scenario.

Stephan Gais, CEO of German firm Mahr, which makes high-end measuring tools used in the auto and chemicals sectors, said uncertainty caused by Brexit was hurting his business. But he also scented opportunity should trade between Britain and the EU become more complicated as a result of the divorce.

"There are a few British competitors and if they have difficulties in Europe that would of course help us."

($1 = 0.9092 euros)

(Reporting by Michael Nienaber and Paul Carrel; Editing by Pravin Char)