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Service sector optimism grows at fastest rate on record

Optimism over the future of the service sector increased at the fastest pace on record in the three months to May as the UK’s economic recovery from the pandemic gathered steam.

According to the CBI’s latest quarterly Service Sector Survey, sentiment about the general outlook for the professional services sub-sector jumped from +23 per cent to +63 per cent, a record leap.

Meanwhile, buoyed by the reopening of non-essential retail and hospitality, the consumer services sector saw optimism jump from -55 per cent to +33 per cent.

The picture was more mixed for volumes, with business and professional services volumes rising at the fastest rate on record last quarter, while consumer services volumes continued to decline but at a much slower pace.

But both sub-sectors expect strong growth in volumes in the quarter ahead.

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The CBI’s data comes after IHS Markit’s flash PMI reading for May suggested that business activity in the UK expanded at its fastest rate since 1998 this month.

Driven by the government’s rapid progress with the vaccination scheme, ministers have been able to peel back restriction layer by layer, allowing business activity to take off.

The service sector is at the core of the UK’s economy, accounting for 81 per cent of total UK economic output in 2020.

Ben Jones, CBI Principal Economist, said: “With the reopening roadmap on track and the vaccine rollout delivering, it’s no surprise to see an uptick in optimism across the sector.

“Both sub-sectors are expecting strong business growth over the next few months as restrictions continue to lift.”

But, he added, “clarity on future social distancing requirements and workplace testing would go further towards smoothing the route to recovery.”

By Edward Thicknesse

Source: City AM

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London and south east now accounts for £4 in £10 of total UK economy

London accounts for almost a quarter of the UK’s total economic activity, according to new figures from the Office of National Statistics.

The capital accounted for 22.7 per cent of total UK Gross Domestic Product in 2019, and 23.8 per cent of total Gross Value Added.

When the south east is added, that figure rises to 37.5 per cent and 38.4 per cent.

London business leaders said the figures demonstrated the need for “concerted action” to ensure the capital continues to power the country’s economy in the aftermath of Covid-19.

And, in the ten years to 2019, London saw GDP growth of 49 per cent compared to 33 per cent across the whole of the rest of the country.

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Total GDP (£m)Percentage of total
UK2,214,362100%
England1,902,98685.94%
North East64,2602.90%
North West212,8439.61%
Yorkshire / Humber146,7466.63%
East Midlands129,8545.86%
West Midlands163,6247.39%
East of England190,9628.62%
London503,65322.74%
South East327,10214.77%
South West163,9417.40%
Wales77,5173.50%
Scotland166,9577.54%
Northern Ireland48,5842.19%
Extra-Regio18,3180.83%
Source: Office of National Statistics

The new data suggests UK GDP grew by 1.3 per cent in 2019. London witnessed the largest growth at 2.2 per cent. Total GDP per head in London was £56,149, compared to the UK average of £32,876.

The Covid-19 pandemic, however, is expected to have hit the capital hard – with hospitality and tourism both hard-hit by lockdowns.

Laura Osborne, Interim Corporate Affairs Director of London First, said: “Central London lost more jobs than any other region, but the stats show that the capital’s economy remains vital to the economic recovery of the whole UK.

“The UK’s rapid economic recovery demands a vibrant, growing capital city. Concerted action is needed to bring people back to the capital, to put Transport for London on a sustainable financial footing and to turbo-charge reskilling. Simply leaving London to bounce back is not enough.”

By James Silver

Source: City AM

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UK economy is expected to accelerate recovery in 2021

OPTIMISM is being felt for the UK economy as the best reading on record has been found in a survey of business activity.

A purchasing index from the IHS Markit saw a surge in growth and employment in the latest reading this month.

IHS credits the surge to the continued unlocking of society and consumers being more confident to visit pubs and restaurants as the Covid-19 vaccine rollout continues.

It follows a rise in business activity seen in March when the retail sector reopened after the third lockdown.

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However, GDP has fallen by 1.5 per cent in the first quarter.

The IHS has warned that although business activity is on the rise, inflation could also surge as consumer prices are increasing.

Early this week it was revealed that the UK’s inflation rate more than doubled to 1.5 per cent in March, it is the highest rate seen in the UK for a decade.

By Gareth Cavanagh

Source: News and Star

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UK economic growth is picking up pace as restrictions ease

HOPES have been raised that UK economic growth is picking up pace in the second quarter after a key survey signalled a big leap in private sector activity in May, driven by a resurgence in manufacturing and the reopening of retail and hospitality.

The seasonally adjusted, flash composite purchasing managers index (PMI) for the services and manufacturing sectors reached a series high of 62.0 in May, up from 60.7 in April. The index gave readings of 56.4 in March and 49.6 in February. IHS Markit and CIPS (Chartered Institute of Procurement & Supply), which compile the data, said the rate of expansion was the fastest since the composite index began in January 1998, and was underpinned by strong contributions from manufacturing and services.

The expansion came amid steep increases in output, new orders and employment in the manufacturing sector, and rising demand for hotels, restaurants and other consumer-facing services as hospitality, tourism and non-essential retail reopened.

The flash manufacturing PMI reading surged to 66.1 in May, the highest since this survey began in January 1992, from 60.9 in April, while the reading for services rose to 61.8 from 61. Any reading above 50 signifies expansion.

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Chris Williamson, chief business economist at HIS Markit, said: “The UK is enjoying an unprecedented growth spurt as the economy reopens. Factory orders are surging at a record pace as global demand for goods continues to revive, and the service sector is reporting near-record growth as the opening up of the economy allows more businesses to trade. Business confidence has meanwhile hit an all-time high as concerns about the impact of the pandemic continue to fade.”

Howard Archer, chief economic adviser to the EY ITEM Club, noted that the index had shown employment had risen for the third month in a row after a year of contracting, and at the “fastest rate since June 2014”.

But he observed: “Not so good news saw input prices rise at the fastest rate for nearly 13 years.”

The report noted that pressure on prices came from a “shortages of raw materials and high shipping costs, while service providers often noted increased staff salaries.”

Kieran Tompkins, assistant economist of Capital Economics, said the latest reading from the closely watched IHS Markit/CIPS index – the highest in more than 20 years – “points to the economic recovery shifting through the gears and picking up speed.”

By Scott Wright

Source: Herald Scotland

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UK business activity grows at its fastest pace since 1998

UK business activity has grown at its fastest pace for more than two decades, according to early economic data for May.

The closely-followed IHS Markit/CIPS Flash UK Composite PMI report came in at 62 for the month, up from a reading of 60.7 in April.

Any reading above 50 represents growth in output.

The reading signals that the UK has seen its strongest growth since the index began in 1998, on the back of “strong” growth in both the manufacturing and services sectors.

Relaxed pandemic restrictions and pent-up demand from consumers also helped to spark a rise in employment, with the figures highlighting the fastest rise in private sector employment for more than six years.

The services sector – which includes hospitality firms which have benefited from eased restrictions this month – saw a reading of 61.8 for the months, marginally below analyst predictions.

Meanwhile, the manufacturing reading surged to 66.1, the highest figure since the survey began.

Chris Williamson, chief business economist at IHS Markit, said: “The UK is enjoying an unprecedented growth spurt as the economy reopens.

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“Factory orders are surging at a record pace as global demand for goods continues to revive, and the service sector is reporting near-record growth as the opening up of the economy allows more businesses to trade.

“Business confidence has meanwhile hit an all-time high as concerns about the impact of the pandemic continue to fade.”

However, the rebound also resulted in price inflation with costs pressures at “the strongest for nearly 13 years”.

Duncan Brock, group director at CIPS, said: “Manufacturers keen to secure raw materials for the coming months were forward buying with greater intensity and contributing to the ongoing poor performance of supply chains as delivery times increased to record-levels.

“This in turn compounded the number of shortages and impacted on the costs of goods and raw materials.”

Source: Irvine Times

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UK inflation doubles in April as lockdown restrictions ease

UK inflation has more than doubled in April as energy and clothes prices pushed the consumer price index up to 1.5% amid the easing of lockdown restrictions.

A rise from March’s 0.7% readout, the figure comes more in line with the Bank of England’s expected rate of 2% by the end of the year.

Statistics published by the Office for National Statistics (ONS) identified rising household utility, clothing and motor fuel prices as the biggest drivers of the increase which was still partially offset by a large downward contribution from recreation and culture.

Gas and electricity saw big jumps with price rises of 9.4% and 9.1% respectively between March and April driven by a spike in global demand for wholesale gas.

A bounce in oil prices from $20 per barrel last year to around $70 today also put pressure on inflation and will continue to do so as demand increases as the global economy opens up again.

Ambrose Crofton, global market strategist at JP Morgan Asset Management, said that “a confluence of factors including Brexit-related trade frictions, rising commodity and freight prices are adding cost-push pressure” to the manufacturing side of the economy.

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End of furlough scheme could keep inflationary pressures at bay

Inflation is likely to increase further throughout the year as “the economy gradually reopens, the recovery picks up steam and supply constraints intensify in the sectors that were hit by the pandemic,” according to Silvia Dall’Angelo, senior economist at the International Business of Federated Hermes.

Dall’Angelo said higher wholesale gas prices could lead to hikes in regulated utility prices later in the autumn, pushing CPI inflation close to 3%.

But she notes that as inflationary drivers are “set to be largely cost-push and hence temporary” with residual disruption to the labour market likely to show up at the end of the furlough scheme in September, underlying inflationary pressures could be contained.

Economic recovery could be a Trojan horse for inflation

However AJ Bell financial analyst Laith Khalaf said that “at current levels, UK inflation is nothing to fret about, but there is rising concern that the fiscal and monetary response to the pandemic has sown the seeds of an inflationary scare further down the road.”

The Bank of England showed no signs of tightening the reins just yet as it announced it would make no changes to monetary policy earlier this month with interest rates remaining at 0.1% for now despite its improved economic forecasts.

Khalaf said: “For the moment, the Bank of England is dismissing consumer price increases as a natural bounce back from the depths of the pandemic last spring. But the economic recovery could be a Trojan horse, smuggling inflation into the UK, right under the nose of central bankers.”

Khalaf noted that inflationary fears are already starting to creep into the market with the 10-year gilt yielding 0.9%, up from 0.2% at the beginning of the year.

Despite this Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson, notes real yields “remain very negative as guidance about interest rates continues to hold down nominal yields, even in the face of expected strong growth and rising inflation”.

“While breakeven rates on UK gilts are towards the upper end of where they have been over the last two decades, it is not clear that they are at a level that should be unduly concerning for the Bank yet.”

By Harriet Habergham

Source: Portfolio Adviser

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Inflation doubles as fuel, clothing and ice-cream all soar in price

Inflation doubled in April and could do the same again by the end of the year, some economists warned today, as pressure grows on the Bank of England to raise interest rates.

While that would risk curtailing the economic recovery, some say rates are simply too low at 0.1% and that the Bank is underestimating the chance of inflation spiralling out of control.

Prices rose at 1.5% in April up from 0.7% in March, higher than expected. Gas, electricity and petrol all jumped, as did more frivolous items such as chocolate and ice-cream – there has been talk of a 99 Flake shortage in the summer.

Ernst & Young says inflation will hit 2.7% in late 2021 or early 2022. “Further rises in consumer price inflation are highly likely,” says E&Y.

The Bank is supposed to keep inflation at 2% — it has undershot that target for the duration of the pandemic and for the last 21 months running.

But as the UK emerged from lockdown, pent up demand from consumers saw a spending splurge. By some estimates there is £60 billion of “excess” cash in bank accounts ready to be spent.

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Steven Cameron, pensions director at Aegon, said: “As the door to the economy reopens the expectation is that consumers will rush to spend savings built up over lockdown. There is concern that this creates inflationary pressures that pushes rates well beyond both the target and anything that consumers have had to deal with in recent years or for many in living memory.”

The most bearish economists note that there are price pressures in the pipeline on many vital goods, including energy and timber.

And they say that if you strip out a temporary cut in VAT on hospitality, inflation is actually already at 3.2%.

In the US, where government spending is even higher than in the UK, inflation hit 4.2% in April.

Ed Monk, associate director for Personal Investing at Fidelity International commented: “Inflation has started to take off. More than doubling to 1.5% in April, it is now closing in on the Bank of England’s 2% target and could blow past that if the demand in the economy continues to build in the coming months.”

Simon French at Panmure Gordon said: “These numbers confirm that inflation is going to pick up strongly this year, aided by comparisons with such depressed prices in 2020. However the Chancellor should hold his nerve. Inflation ultimately is a sign the economy is reopening, jobs are being created and livelihoods are being saved. To try and deflate the UK economy now would be a policy mistake.”

Petrol rose by 1.8p a litre to 125.5p. Gas and electricity bills both rose by more than 9%.

Ruth Gregory at Capital Economics said: “The rise in CPI inflation from 0.7% in March to 1.5% was almost entirely driven by energy price effects, which will only be temporary. We doubt a sustained increase in inflation that would concern the Bank of England will happen until late in 2023.”

By Simon English

Source: Evening Standard

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UK economy recovering strongly as lockdown measures are eased

Further evidence emerged Tuesday to show that the UK economy is recovering strongly, with the number of people on payroll increasing as coronavirus lockdown measures are eased.

The Office for National Statistics found that the number of payroll workers rose by 97,000 between March and April, a period when some lockdown restrictions were eased. At the end of March, pubs and restaurants were allowed to reopen in an outdoor setting, for example.

The reopening meant many workers who had been idle over the previous months of lockdown could return to their jobs even though activity levels weren’t as high as they would have been if indoor serving was allowed.

Though the most recent figures show an improvement, the U.K. has clearly seen jobs lost during the pandemic, with 772,000 fewer people on the payroll than before it struck in spring 2020.

The statistics agency also found that the overall rate of unemployment in the U.K. fell once more, to 4.8 per cent in the three months to March, down from the equivalent figure for February of 4.9 per cent.

This came despite the country being in tight lockdown in the first three months of 2021, with the statistics agency saying many unemployed were no longer looking for work.

The agency also said there were 1.6 million people unemployed in the three months to March, down 121,000 on the previous three-month period.

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The figures add weight to the Bank of England’s recent prediction that the anticipated peak in unemployment will be far lower than anticipated as lockdown restrictions are eased further following the sharp fall in coronavirus infections and the rapid rollout of vaccines. It now expects the jobless rate to peak at 5.5 per cent, against 7.75 per cent previously.

On Monday, the lockdown was eased further across most of the U.K., with pubs and restaurants allowed to reopen indoors. Cinemas and theaters were also allowed to reopen while the ban on foreign holidays was partially lifted, though the number of destinations deemed safe remains limited.

The extension of the job retention program, which has seen the government pay the bulk of workers unable to work because of lockdown restrictions, has helped soften the blow to unemployment. The growth rebound, which the Bank of England expects to hit 7.25 per cent this year, is set to see most furloughed employees return to work when it ends.

The Resolution Foundation think tank cautioned though that the labor market is unlikely to return to its pre-crisis structure given fundamental changes in the way people work and shop.

Adapting to this changed world will be a key challenge for workers, and policy makers, in the years ahead,” said Hannah Slaughter, economist at the Resolution Foundation.

Source: Business Standard

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UK economy is set to grow at its fastest pace since the Second World War

The UK economy is set to grow at its fastest pace since the Second World War, overtaking the US, according to Bank of England economist Andy Haldane.

Low Covid infection rates and vaccinations are leading to a surge in consumer spending, he said.

The unemployment rate is also lower than expected.

However, there is a risk of 1970s-style inflation rates with “boom turning to bust”, he added.

Writing in a column for the Daily Mail, Mr Haldane said: “Spring has sprung for the UK economy. This year it is set to grow at its fastest pace since the Second World War.

“It is easy to see why. As Covid infection rates have fallen sharply and the vaccination programme has been rolled out, the health risks facing us have plummeted.”

Mr Haldane, who has previously warned against pessimistic views of the economy, said consumers are returning to shops, pubs and restaurants with retail spending above pre-Covid levels.

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The housing market is also booming, while hiring and investment among businesses is also picking up, he said.

Mr Haldane predicts as many new jobs will be created this year that are lost with unemployment figures revised down from 7.75% to less than 5.5%.

“A year from now, it is realistic to expect UK growth to be in double-digits, activity to be comfortably above pre-Covid levels and unemployment to be falling,” Mr Haldane said.

“Such a tennis ball bounce in the UK economy would put it at the top of the G7 growth league table.”

Mr Haldane, who sits on the Bank of England’s Monetary Policy Committee, predicted a sharp, V-shaped recovery last year which did not materialise.

Official figures published earlier this week showed the UK economy shrank by 1.5% in the first three months of 2021, but gathered speed in March as lockdown restrictions began to ease.

The reopening of schools and strong retail spending helped the economy grow 2.1% in March, its fastest monthly growth since last August.

Mr Haldane said if health and unemployment risks continue to remain low, spending is likely to continue.

However, he warned a rise in inflation levels could turn boom to bust “derailing the country’s recovery”.

“The most likely cause of such a bust, history tells us, is an unwanted bout of inflation.”

He added: “And experience during the 1970s and 1980s demonstrates that, once out of the bottle, the inflation genie is notoriously difficult to get back in.”

Mr Haldane estimates inflation levels by the end of this year could be above its 2% target and has voted for the Bank of England to scale back quantitative easing.

“Doing so now reduces the risk of a handbrake turn – for borrowing costs and the economy – down the road, with all of the disruption this would entail for our jobs and finances,” he said.

Source: BBC

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Increases in mortgage arrears expected this year

MORE home-owners are expected to fall into mortgage arrears this year as the economic repercussions of the coronavirus pandemic continue to be felt, according to UK Finance.

The trade association, which represents the banking and finance industry, said mortgage arrears remained close to historically low levels in the first three months of 2021.

From March 2020 to the end of March this year, lenders were offering payment holidays of up to six months to borrowers whose finances had been affected by the coronavirus pandemic.

Nearly 2.9 million mortgage payment deferrals were granted while the scheme was active.

For borrowers who need additional support beyond the six-month payment holidays, lenders are continuing to offer tailored support.

UK Finance’s latest figures show a small increase of 230 mortgages in arrears compared with the previous quarter, with a total of 77,640 home owner mortgages in arrears of 2.5% or more of the outstanding balance.

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Within the total, there were 27,280 mortgages with significant arrears representing 10% or more of the outstanding balance. This was an increase of 620 on the previous quarter.

UK Finance said this figure has slowly increased since early 2020 but from a low base, largely driven by customers who had several missed payments before the pandemic.

Eric Leenders, managing director of personal finance at UK Finance, said: “While there was a slight rise in total arrears in quarter one 2021 compared to the historic low levels seen before the pandemic, the additional support from lenders has helped many mortgage customers stay out of arrears.

“With the economic impact of Covid-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021.

“Any customer who is concerned about their finances should contact their lender early to discuss the options and tailored support available to them.”

Only 190 home-owner mortgaged properties and 180 buy-to-let mortgaged properties were repossessed in the first quarter of 2021.

Although Financial Conduct Authority (FCA) guidance allowed firms to re-start litigation activity from November 2020, lenders voluntarily committed to pause repossessions in line with a “winter truce” from mid-December 2020 to mid-January 2021, UK Finance said.

It added that repossessions are expected to eventually increase due to the backlog of cases that did not take place in 2020.

These cases will have been in train before the pandemic, it said, adding that repossessions are always a “last resort”.

Source: Irish News

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