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British adults are £1,189 more in debt than they were a year ago

The financial impact of the pandemic has been felt everywhere in the UK. Data from The Money Charity shows that for many, it’s not only affected savings and investments but also overall debt. Between June and August 2021, an average of 305 people a day in England or Wales declared insolvency or bankruptcy.

Added to this, figures from the Office for National Statistics show that by December 2020, almost nine million people had to borrow money to make up for a reduction in income or additional expenses during the pandemic. People on lower incomes were more likely to get into debt, need to borrow money or have their finances affected as a result of the pandemic.

How the country is faring

When it comes to personal debt, it turns out the UK is not faring so well. In fact, Brits are now £62.9 billion more in debt than they were back in July 2020. This equates to an extra £1,189 in debt per adult.

The average household now has a debt of £62,670, including a mortgage. This translates to £32,931 per adult. Perhaps more scary is the fact that estimates for 2025 see the total rising to an average of £82,641 per household if things continue moving in the same direction.

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If you take away mortgages, the average adult in the UK now has about £3,734 in unsecured debt, including £1,067 in credit card debt. For those making the minimum payment, it will take 24 years and nine months to repay the entire amount.

Dealing with your debt

If you’re one of the many Brits struggling to keep up with bills, a good first step is to tally up everything you owe. This includes not only credit cards and loans but also household bills you might have fallen behind on. Research shows that over six million Brits have fallen behind on at least one household bill as a result of the pandemic, and a significant 1.2 million haven’t been able to keep up with their rent payments.

Once you understand what you really owe, it’s time to make a few phone calls to your providers to figure out payment plans or see if you can get extra time to pay. This is important for things like your mortgage, as The Money Charity points out that more than two properties a day were repossessed between April and June this year for missed payments.

Reducing expenses

Since the end of the lockdown, expenses in the average household have increased significantly. This is good news for the economy, as people are shopping and eating out again. But as a consumer, if you’re not careful, it can spell trouble for your bank account.

Now is a good time to redo your budget and make sure you’re not overspending. If a monthly budget feels overwhelming, start with a weekly one. Revise it regularly until the numbers add up. Don’t forget to give yourself an amount for fun post-lockdown spending.

If you are overwhelmed with debt and cannot make minimum payments, it might be worth talking to a debt advice service such as the StepChange Debt Charity. They can advise you on your rights and how to move forward in the best possible way.

By Diana Bocco

Source: The Motley Fool

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UK economy grows on camping and dining out

The UK economy grew by 0.4% in August as more people dined out, went on holiday and attended music festivals.

The Office for National Statistics (ONS) said the services sector made the biggest contribution to economic growth in the first full month after all Covid restrictions were lifted in England.

It said arts, entertainment and recreation grew 9%, boosted by sports clubs, amusement parks and festivals.

There was also more demand for hotels and campsites.

Restrictions on social distancing were eased from 19 July.

The ONS said the UK economy is now 0.8% smaller than it was before the pandemic.

“The economy picked up in August as bars, restaurants and festivals benefited from the first full month without Covid-19 restrictions in England,” said Darren Morgan, director of economic statistics at the ONS.

“However, later and slightly weaker data from a number of industries now mean we estimate the economy fell a little overall in July.”

The ONS said economic growth fell by 0.1% in July compared with initial estimates of 0.1% growth.

Activity in accommodation and food services rose by 10.3% in August, within which hotels and campsites recorded 22.9% growth.

In travel, air transport and rail both grew in August as Covid-related measures eased, however both industry are still trading far below pre-pandemic levels.

‘Small rebound’

Emma-Lou Montgomery associate director at Fidelity International, said that while August’s growth “marks a small rebound” on July, “the worry remains that economic growth won’t even be in touching distance of pre-pandemic levels until well into next year”.

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She said supply chain disruption risks dampening consumer confidence.

“This all comes in the crucial lead up to Christmas, when suppliers and retailers should be firing on all cylinders,” Ms Montgomery said.”But with households facing steep price rises for everyday items, from the food shop through to the gas bill, there will be little desire – or capacity – to spend, spend, spend.”

Growth in the UK economy – everything produced, from new cars to haircuts to restaurant meals – isn’t at all slow by normal standards at 0.4% in a month. But we’re supposed to be bouncing back with growth of 7% this year.

What’s becoming increasingly clear, is that it’s not a lack of demand for goods and services that’s holding the recovery back but the inability of firms to supply that demand.

A big part of the reason? Shortages. In construction, for example, where business is not growing but shrinking, firms reported to the ONS that they’ve got healthy order books. But they can’t meet more orders, partly because of a shortage of materials in August (for example, wood and steel) and partly because of a shortage of skilled staff.

The ONS reports evidence that the shortage of haulage drivers is slowing down industries from pharmaceuticals to electric lighting. Exports of goods, too, are down by 13% compared with 2018.

Some of these shortages may be due to supply bottlenecks related to the post-pandemic global surge in activity. But without doubt some, notably the ongoing shortage of lorry drivers, are in large part related to Brexit.

2px presentational grey line
Elsewhere, economic growth was uneven with some sectors hit by shortages of materials. Output in construction fell by 0.2% in August and the sector remains 1.5% below pre-pandemic levels.

The ONS said: “This reflects recent challenges faced by the construction industry from rising input prices and delays to the availability of construction products – notably steel, concrete, timber and glass.”

The manufacturing sector expanded by 0.5% in August following a 0.6% in July. The ONS said growth was led by an increase in vehicle production “as it continues to recover following supply side challenges predominantly caused by the global microchip shortage disrupting car production”.

But it said the output in the manufacture of motor vehicles remains 14.5% below a peak in February this year.

Paul Dales, chief UK economist at Capital Economics, said: “Such drags may have become more widespread and significant in September and October, with the fuel crisis preventing some people from getting to work.”

He said Capital Economics’ activity indicator “suggests that GDP may not have increased at all in September”.

Martin Beck, economist at professional services firm, EY,said: “The recovery is certainly facing more headwinds.

“Rising inflation, driven by significant increases in energy prices, and the recent cut in Universal Credit are squeezing consumers’ spending power.”

Source: BBC

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UK economy picks up in August as GDP grows 0.4%

Bars and festivals lifted the UK economy as GDP grew by 0.4% in August, but remained 0.8% below the pre-pandemic level of February 2020, according to the Office for National Statistics (ONS).

The latest snapshot showed activity in the accommodation and food service sectors, as well as arts, entertainment and recreation, contributed most to growth in the UK’s dominant service sector, which makes up about 80% of the UK economy.

The service industries grew by 0.3% in August, bouncing back from a 0.1% drop in July, while manufacturing expanded by 0.5% following July’s 0.6% decline.

Overall production output climbed 0.8%, accelerating from July’s 0.3% rise, as crude oil and natural gas extraction bounced back following a temporary closure of oil field sites for planned maintenance. Construction continued to shrink, by 0.2%, and is now 1.5% below its pre-pandemic level.

Chip shortages which had hampered carmakers eased in August, the ONS said, helping manufacturing return to growth, but car output was still more than 14% below a peak in February.

In the three months to August, the economy grew by 2.9%, against forecasts of 3% growth.

The ONS also revised GDP for July 2021 down, from 0.1% growth to a 0.1% fall, due to a downward revision of data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured.

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David Page, head of macro research at AXA Investment Managers, said the figures for August were disappointing. “The Bank of England (BoE) will take account of this latest data as it considers the outlook for monetary policy in the November Monetary Policy Report meeting.

“On the face of it the marked slowdown in economic activity into Q3 should serve as a warning against too swift a tightening in monetary policy, particularly as GDP looks set to face ongoing headwinds from higher utility prices, cuts in Universal Credit and eventually increases in National Insurance all pressuring household incomes over what threatens to be a difficult winter.”

Page said AXA IM changed their forecast to envisage the first hike (0.15% to 0.25%) by the BoE in February next year. “We then consider a second in August (to 0.50%) and a third in May 2023 (to 0.75%),” he added.

Victoria Scholar, head of investment, interactive investor, said: “All sectors of the economy are still smaller than before the pandemic, with consumer facing services around 5% below their peak. Pressure remains on the UK economic outlook with the cost-of-living crisis, above-target inflation and rising Covid cases.”

The IMF warned on Tuesday that the UK’s recovery from coronavirus would probably lag behind other countries and by 2024 the economy would remain 3% smaller than the level forecast. Other countries, it forecast, would return to the growth predicted before the pandemic.

Derrick Dunne, CEO of YOU Asset Management, commented: “With the ONS recording a 0.4% increase in GDP for August, it would be tempting to think that growth may be back on an upward trajectory, but investors should be taking today’s figures with a pinch of salt.

“Sectors like accommodation, food services and entertainment fared the best as infection rates fell and people rushed to socialise with family and friends, however the current picture is somewhat less rosy. The UK is faced with a supply chain crunch, rising prices and labour shortages, all of which could create a drag on GDP growth as we move towards the usually busy festive period.

“While the outlook for the economy remains broadly positive, investors would do well to review their strategy and ensure it’s equipped to withstand a more drawn out recovery.”

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “Festival fans enjoying new-found freedom in August and strong campsite bookings helped lift economic output, with the arts entertainment and recreation sector growing by 9%.

“But the economy can’t rely on happy campers to sustain growth, given the storm clouds that have gathered over supply chains since the summer.”

Streeter predicts the Bank of England will not have an easy choice to make. “It certainly won’t be an easy ride for Bank of England policymakers when they meet next to decide when to raise interest rates. Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating,” she said.

Paul Craig, portfolio manager at Quilter Investors, said: “The creaking UK economy is taking its time to spring back to life. The problems lie now not with demand but with supply. Acute labour shortages in several pockets of the economy along with chronic skills shortages have the potential to frustrate the economic recovery, and could well dampen any expectations for a strong economic revival over the winter months.

“Once more, the UK economy will be going through structural changes as we establish our future relationship with Europe and the outside world after Brexit. This structural dislocation will no doubt weaken growth expectations.”

Sarah Giarrusso, investment strategist at Tilney Smith & Williamson, warned that the UK still faces headwinds, such as labour shortages and supply chain disruption which could lead to higher, stickier inflation. “Despite this, consensus forecasts for 2021 and 2022 annualised real GDP remain firmly in expansionary territory at 7.0% and 5.3% respectively.

“We expect the UK economy to continue its recovery and the environment to remain conducive for equities to outperform bonds,” she added.

By Pedro Gonçalves

Source: Investment Week

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Bank of England rate-setter: Brace yourself for interest rate rises very soon

One of the key rate-setters on the Bank of England’s Monetary Policy Committee has today said UK households should be primed for an interest rate rise “significantly sooner” than first thought.

Michael Saunders, the former Citigroup economist turned Threadneedle St wonk, noted that financial markets had already priced in a pending rate rise as economies look to dampen inflation.

Saunders told the Sunday Telegraph: “I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely, the decisions get taken at the proper time. But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”.

It’s a fresh sign that the Bank of England may be the first major central bank to raise rates as the world emerges from the Covid-19 pandemic.

Last month the nine-member Monetary Policy Committee voted unanimously to keep rates at the record low of 0.1 per cent.

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But Saunders and Deputy Governor Dave Ramsden voted to halt the BoE’s government bond purchases ahead of schedule.

Saunders said markets had fully priced in a February rate hike by the British central bank and had half priced in a December increase in borrowing costs.

“I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” he said.

The comments by Saunders came shortly after Bank of England Governor Andrew Bailey said inflation running above the central bank’s two per cent target was concerning and had to be managed to prevent it from becoming permanently embedded.

By Josh Martin

Source: Commercial Finance Network

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UK business output falls to lowest level since lockdown

UK business output has shrunk to its lowest level of growth since the reopening of the economy as staff shortages and supply chain disruptions battered productivity last month.

The closely-watched BDO Output Index suggests a slowdown across both manufacturing and services, falling more than five index points month-on-month to 100.69, effectively indicating average trend growth just months after the UK opened up.

The firm’s inflation index meanwhile jumped to a near ten-year high in the same month, as average prices continued to increase.

It is the latest in a series of data that suggest the UK recovery is slowing considerably, putting more pressure on Rishi Sunak ahead of the budget due at the end of the month.

Last week IHS Markit warned of a “severe loss of momentum” across the construction sector, often a bellwether for wider economic activity.

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The rise in energy prices, driven by higher wholesale natural gas costs, is being felt right across the economy.

“While a gradual deceleration in the pace of growth is to be expected as economies normalise after the pandemic, it is clear that acute labour shortages and supply chain disruption are weighing heavily on productivity,” said Kaley Crossthwaite, a partner at accountants BDO.

“Many businesses are caught between a rock and a hard place. Long-term planning for a post-pandemic and post-Brexit economy is crucial, but the significant challenges at their door make it increasingly difficult to focus beyond these short-term issues,” she continued.

The warning came just a week after Conservative party conference, during which PM Boris Johnson hailed the emergence of a new “high-skilled, high-wage” economy.

“Ultimately,” warned BDO partner Kaley Crossthwaite, “this could mean consumers end up paying more for less this winter.”

“Many businesses are caught between a rock and a hard place,” she said, acknowledging that long-term planning for a post-pandemic and post-Brexit economy, though crucial, was difficult for businesses dealing with the short-term issues.

Crossthwaite said: “The Chancellor’s autumn Budget will be watched closely later this month to see whether the government steps in to restore the confidence felt through the summer.”

The news follows a PwC report into consumer confidence which found that while consumer sentiment was still positive, and higher than in the period following the EU referendum, the energy crisis, inflation and driver shortage problems were starting to impact confidence in the run up to Christmas.

By Farah Ghouri

Source: City AM

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Analysis: six squeezes on the UK economy from bills to shopping to petrol

Britain is short of 100,000 lorry drivers, energy firms are sinking, food items are running scarce and employers are scrambling for staff as multiple crises erupt.

Deliveries
Many of the problems facing the economy relate to Britain’s shortage of 100,000 lorry drivers – 96% of logistics businesses are having problems recruiting, and businesses are starting to run short of warehouse staff, van drivers, mechanics, technicians, forklift drivers and transport managers, according to Logistics UK. It said that19,000 HGV drivers have left the UK because of the pandemic and Brexit and 45,000 new drivers have not been able to take tests due to Covid.

Petrol
Ministers were forced to deploy army tanker drivers to help fill petrol stations last week, as the transport fuel crisis pushed into its third week. The shortage, prompted by a lack of lorry drivers and by panic buying, has affected London and the south-east most severely. Fuel is now more generally available, but 12% of petrol stations in the region were still without fuel last Thursday, according to the Petrol Retailers Association.

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Bills
Gas and electricity bills went up £139 on average in October, and will rise again unless wholesale prices of natural gas fall. Customers may pay up to £600 more per year, and National Energy Action warned last week that the number of families struggling to heat their homes could rise by 1.5 million to 5.5 million. So far 12 energy firms have gone bust this year.

Industry
Gas bills are not capped for businesses, which led to fertiliser factories shutting down last month, creating a carbon dioxide shortage. Steel, glass, paper, ceramics and other heavy industrial manufacturers say they may be forced to stop production – which could mean the permanent closure of some plants.

Retail
Shelves in shops and supermarkets have been emptying. One in six adults have been unable to buy essential food items in the past two weeks, according to the Office for National Statistics, and nearly a quarter said they had not been able to buy other non-essential items. People are also waiting longer for prescriptions. The government has appointed a supply chain adviser but logistics firms believe the problems will get more severe in the run up to Christmas.

Vacancies
With about 2 million job vacancies to fill already, employers have started scrambling for about 100,000 temporary staff to fill Christmas roles, with Royal Mail, Tesco, Sainsbury’s, Amazon, Morrisons and John Lewis looking for staff. Ministers appear to have pinned their hopes on the end of furlough last month, which removed support for about 1 million workers on the scheme.

By James Tapper

Source: The Guardian

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Shortages, inflation and slow growth fog UK economy

Britain’s economic bounce-back after coronavirus lockdowns is being hampered by problems in supply chains, a jump in inflation and the risk of a rise in unemployment, complicating the task for policymakers of steering the recovery.

Former Bank of England chief economist Andy Haldane says Britain is in a VILE era of volatile inflation, low expansion.

Financial markets now think the BoE is all but certain to raise interest rates by February but some economists, worried by signs of a flagging recovery, aren’t so sure.

Below are some of the gauges of Britain’s economy that are likely to be on the minds of economic policymakers.

INFLATION

Britain’s inflation rate hit 3.2% in August, its highest in almost a decade. Some one-off factors accounted for the record jump from July but the BoE thinks inflation is heading above 4%, more than double its 2% target.

The BoE is watching for any signs that consumers are losing confidence that inflation will be contained in the longer run.

Public expectations for inflation in the year ahead rose sharply in September, according to a Citi/YouGov survey which may have weighed on the minds of BoE rate-setters. They said last month that the case for raising rates was strengthening.

GROWTH FADING?

While Britain’s economy grew rapidly earlier this year as it reopened from a third COVID-19 lockdown, the latest readings show this momentum has largely dissipated. Economic growth slowed to a crawl in July, according to official data, and surveys of businesses and consumers suggest sluggish growth persisted into the second half of the year – even before the most severe supply chain problems seen in recent weeks.

SUPPLY CHAIN PROBLEMS

There has been no let-up in the supply chain and staffing problems for British manufacturers dealing with hefty delays from suppliers, according to the latest IHS Markit/CIPS survey of businesses.

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That was even before panic-buying at petrol stations, caused by a shortage of tanker drivers, led in late September to the biggest week-on-week drop in car traffic since early June – another unpromising sign for the economy.

The shortage of workers, something seen in other economies around the world, has worsened since Britain decided to leave the European Union and end free movement of workers from the bloc. But Prime Minister Boris Johnson denied on Tuesday Britain was in crisis and said its “natural ability to sort out its logistics and supply chains is very strong.

CONSUMER SPENDING

The supply chain disruption and rising inflation prompted a hefty hit last month to the GfK gauge of consumer confidence – historically a good indicator of household spending.

Households are also facing cuts to state benefits and tax increases for working people.

BoE data published last week suggested consumers are once again leaning more towards saving than spending.

JOBS AND WAGES

Britain’s unemployment rate has fallen in six of the last seven monthly reports, helped by the economic recovery and the government’s jobs-protecting furlough programme.

That scheme ended at the end of September and the BoE is keeping an eye on whether unemployment is about to rise again.

Wages have been rising fast although the official measure of earnings growth has been boosted by statistical distortions caused by the pandemic. Still, inflation has started to bite into earnings: the official real-terms measure of total wage growth has declined for three months running.

Reporting by Andy Bruce

Source: Reuters

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Pound Sterling Recovery against Euro and Dollar Can Hold: Analysts

The British Pound is tipped by a number of institutional analysts to remain supported and over time extend higher from the lows it plumbed against the Euro and U.S. Dollar just last week.

The Pound has at the time of writing clawed its way back up into the familiar multi-week ranges it had established against the Euro and Dollar in the April-September period, having briefly slumped to multi-month lows against its two major peers.

“Adverse headlines on various shortages in the UK hit sterling, but we expect a recovery in investor sentiment toward the pound with the Bank of England clearly heading toward tightening next year,” says Gaétan Peroux, Strategist at UBS AG.

The Pound-to-Euro exchange rate has crossed the 1.17 level again while then Pound-to-Dollar exchange rate sits just below 1.36, but Friday’s U.S. jobs report will almost certainly prove the highlight of the week for this pair.

The British Pound was sold heavily against the Euro and Dollar in the previous week alongside global stocks and high yielding assets as investors fretted that inflation was headed higher for a protracted period amidst a global energy crisis.

But the Pound was easily the worst performing of the world’s major currencies by the mid-week session, suggesting there were some UK-specific factors bothering investors and this was not simply a typical ‘high beta’ event for the currency.

A surge in UK gas prices to record highs combined with a run on fuel station forecourts by panicked consumers pointed to a combination of weakening growth and the potential for materially higher inflation; a potently negative cocktail for the economy.

Sterling was nevertheless able to stage a notable recovery into October 01, probably helped the completion of month-end and quarter-end repositioning on global markets.

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“The GBP is probably overreacting to the deepening of the energy and fuel crisis in the UK, and this is overshadowing the hawkish turn the BoE made just last week,” says Roberto Mialich, FX Strategist at UniCredit.

Helping the Pound lift off from its previous week’s lows was the Thursday release of UK GDP data that showed the economy grew more than had been previously assumed during the second quarter.

In fact, such was the scale of the upgrade economists now say the UK economy’s performance is now comparable to those of other G7 countries.

The UK suffered a deeper contraction than many of its peers during the Covid crisis owing to an economy that is heavily reliant on the services sector, but the scale of the rebound means it has recaptured that lost growth.

GDP growth for the second quarter read at 5.5%, higher than the original estimate for growth of 4.8%.

This means the UK’s level of GDP is now 3.3% below where it was pre-pandemic in the fourth quarter of 2019, revised from the previous estimate of 4.4% below.

The developments mean the Bank of England is likely to raise interest rates in early 2022, which is sooner than other other major central banks such as the Federal Reserve and the European Central Bank.

This rates advantage is said by analysts to be a fundamental source of support for Sterling.

“We also continue to believe UK’s attractive investment attributes and longer-term GBP undervaluation will act as a strong anchor for the pound,” says Marek Raczko, a foreign exchange strategist at Barclays.

Economists at Barclays now see 2021 growth at 7.3% having upgraded it 0.9pp following the GDP release. Under their new profile, the UK economy recovers to its pre-pandemic level in the first quarter of 2022, a quarter earlier than previously forecast.

“We expect markets to focus on longer-term fundamentals as a guide for GBP’s trajectory. Last week’s GBP weakness felt at odds with the aggressive repricing higher in UK yields (three hikes priced next year),” says Raczko. “Longer-term GBP undervaluation will act as a strong anchor for the pound.”

UBS strategists say they maintain a clear case for a Sterling rebound against other major G10 currencies in the short term, including the dollar.

They also anticipate continued gains against the euro and the Swiss franc in the medium-to-long term, supported by faster Bank of England tightening via the ending of quantitative easing in December and the raising of interest rates.

“The month of September was punctuated with a change in narrative from both the Bank of England and the Fed – both central bank meetings were interpreted as more hawkish than the market was expecting and as such both short-term and long-term interest rates have jumped higher,” says Shane O’Neill, Head of Interest Rate Trading for Validus Risk Management.

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“GBP rates have moved the most, 10y yields printed over 1% for the first time since the middle of 2019. Inflation expectations continue to dominate the narrative here and look set to be the market driver as we head into Autumn,” says O’Neill.

Should investors remain focussed on the UK rate advantage then the prospect of the Pound extending higher remains alive.

The major headwind for the Pound at this stage is the broader market environment which remains vulnerable to weakness.

The Pound has a ‘high beta’ when compared to the Euro, Dollar, Franc and Yen, meaning it tends to fall against these currencies when global stock markets are falling.

Global markets are now well off their 2021 highs amidst a cocktail of concerns that global growth is slowing, inflation will stay stubbornly high, supply chains will remain choked up and central banks will be boxed into raising interest rates.

So often during the post-pandemic stock market boom the Federal Reserve would reassure investors that it stood ready to keep cheap finance flowing to the U.S. and global economies whenever sentiment deteriorated, but this is no longer the case given the high inflationary environment.

In fact, the risk is that the continuation of quantitative easing and crisis-era rock-bottom interest rates will only fuel inflation.

Global markets are undergoing a readjustment and this creates risks for the Pound against the ‘safe havens’ such as the Dollar, Yen, Euro and Franc but it does offer potential upside against the likes of the Australian and New Zealand Dollars as well as Emerging Market currencies.

“We think that a return to a regime of higher and less stable inflation in many major economies would result in a rise in exchange rate volatility and, over time, the depreciation of the currencies of those countries which experience higher inflation,” says Jonas Goltermann, Senior Markets Economist at Capital Economics.

Goltermann says over longer time horizons countries with relatively high inflation tend to experience depreciation of their nominal exchange rates.

“Among developed economies, we think the US, as well as the UK, Canada, and Australia, are more at risk of sustained higher inflation. This suggests to us that their currencies will weaken in nominal terms relative to the currencies of many European and Asia economies, where we expect inflation to remain subdued,” says Goltermann.

Written by Gary Howes

Source: Pound Sterling Live

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UK economy bounced back by more than thought in Q2 before slowdown

UK economy grew by more than previously thought in the April-June period before what looks like a sharp slowdown more recently as post-lockdown bottlenecks, including a shortage of truck drivers, mount.

Gross domestic product increased by 5.5% in the second quarter, the Office for National Statistics said, stronger than its preliminary estimate of growth of 4.8%.

The ONS said the data had been adjusted to take account of more complete data from the health sector as well as an update of its sources and methodology for calculating output.

The revision means Britain is no longer the worst-performing economy among Group of Seven developed countries, when comparing GDP in the summer of 2021 with its level at the end of 2019. It is now tied with Germany and above Italy.

The figures provided a more complete picture of Britain’s swift economic bounce-back from its coronavirus lockdown earlier this year, but there are now signs of a loss of momentum due to shortages of supplies and staff as the global economy reopens.

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“While the upward revisions to GDP are clearly welcome, Q2 was three months ago, and the recovery appears to have stagnated since,” Ruth Gregory, an economist at Capital Economics, said.

“Even so, given that there is now thought to be less spare capacity in the economy that will only encourage the Bank of England to hike rates in the not too distant future.”

On Wednesday, BoE Governor Andrew Bailey said he thought the UK economy would regain its pre-pandemic level of output in early 2022 – a month or two later than the BoE had forecast in August.

Despite the slowdown, the British central bank has signalled that it is moving towards a first interest rate hike since the pandemic as it expects inflation to head above 4%.

Thursday’s data showed households increased their spending by more than 7% in the April-June period and they dipped into their coronavirus lockdown savings to fund it.

The savings ratio, which measures the income households saved as a proportion of their total available disposable income, fell to 11.7% from 18.4% in the first quarter of 2020, the ONS said.

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GDP growth was driven by the services sector, especially in the accommodation and food industry where output rose by 87.6% in quarterly terms as it reopened from lockdown.

Manufacturing output rose by 1.8% in the second quarter, despite a shortage of microchips hurting car production. Food and beverage manufacturing performed strongly.

The ONS said construction output had broadly returned to its pre-pandemic level.

The data also showed that Britain’s current account deficit with the rest of the world held steady at 8.6 billion pounds in the second quarter, equivalent to 1.5% of gross domestic product. In the first quarter, the shortfall was 1.6% of GDP.

Excluding volatile trade in precious metals, the deficit widened to 1.8% of GDP from 0.2% in the first quarter, due to a worsening of Britain’s trade balance and a fall in earnings on foreign investments.

Reporting by William Schomberg and Andy Bruce

Source: Reuters

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Confidence in UK economy slumps as costs rise – IoD

Company directors’ confidence in the UK economy has plummeted, according to a survey published on Friday, as costs continue to mount.

The Institute of Directors’ Economic Confidence Index slid to -1% in September from highs of 27% in June and 22% in July. It is the first time the index recorded a negative score since January 2021, at the start of the third national lockdown.

The survey found that 75% of respondents expected costs to be higher in the coming year than they were in the previous 12 months, while 61% anticipated wages would also rise.

But only 57% of respondents expected revenues to rise, while 20% thought they would be static and 21% predicted they would fall.

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Kitty Ussher, chief economist at the IoD, said: “The business environment has deteriorated dramatically in recent weeks. Following a period of optimism in the early summer, people running small and medium-sized businesses across the UK are now far less certain about the overall economic situation.

“A higher proportion of our members expect costs to rise in the next year than expect revenues to rise. This is not helped by the government’s recent decision to raise employers’ National Insurance contributions, which acts as a disincentive to hire just when the furlough scheme is ending.”

The IoD surveyed 635 of its members between 13 and 27 September. The survey has been traditionally carried out in most months with occasional omissions, such as May and August this year. From October, however, the survey will occur on a monthly basis, with the findings published on the first day of the month.

By Abigail Townsend

Source: ShareCast

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