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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.

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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 recovering quickly, long-term damage unclear-OBR

Britain’s economic recovery from its coronavirus lockdowns has been stronger than expected but it is too early to judge how much long-term damage has been done by the pandemic, a member of the country’s fiscal watchdog said.

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Charlie Bean, a committee member at the Office for Budget Responsibility, said it remained to be seen how many migrant workers had left Britain, how many currently furloughed workers would return to their jobs and how many companies will go bankrupt when government support is removed.

Writing by William Schomberg; editing by Michael Holden

Source: Reuters

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UK economy contracted by 1.6% as people saved at record levels, figures show

UK economy suffered a bigger hit than first thought between January and March as the coronavirus lockdown took its toll and households saved at record levels, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) – a measure of the size of the economy – contracted by 1.6% in the first quarter, compared with the previous estimate of 1.5%.

This means GDP was 8.8% below its pre-pandemic levels at the start of the year, against the 8.7% initial estimate.

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The ONS said households slashed their spending and instead piled cash into savings, with the household saving ratio increasing to 19.9%, compared with 16.1% in the previous three months.

It is the second highest figure on record, beaten only by the 25.9% seen in the second quarter of 2020.

Jonathan Athow, deputy national statistician at the ONS, said: “Today’s updated GDP figures show the same picture as our earlier estimate, with schools, hospitality and retail all hit by the reimposition of the lockdown in January and February, with some recovery in March.

“With many services unavailable, households again saved at record levels with only last spring seeing more saved.”

Source: iTV

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The pound retreats after hitting three-year high amid variant concerns

The pound retreated this morning after reaching a fresh three-year high versus the dollar amid economic recovery hopes.

Well into the London session after the bank holiday weekend, sterling reversed its course to fall 0.2 per cent to $1.4183.

The pound edged lower as concerns over a new coronavirus strain outweighed increasing investor optimism on the UK’s economic recovery.

Three-year high

Sterling touched its highest level since April 2018 of $1.4250 during the Asian session against the dollar.

Analysts attributed the rise to positive global investor sentiment towards Britain’s economic recovery.

“Overseas investor sentiment generally is positive towards sterling given the vaccine roll-out and the reopening of the domestic economy,” said Neil Jones, head of FX Sales at Mizuho Bank.

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“The stage is set for the pound to push higher I would suggest.”

Optimism remains high

UK house prices jumped by an annual 10.9 per cent in May, the most in nearly seven years, mortgage lender Nationwide revealed this morning.

Jones said that the house price data, which surprised in the upside, helped to keep optimism around the British currency.

Economic indicators including retail sales and employment measures are also looking up, as well as a deluge of new orders driving a record increase in British manufacturing last month.

Sterling also found support from Bank of England policymaker Gertjan Vlieghe last week, who said the central bank was likely to raise rates only well into next year.

By Damian Shepherd

Source: City AM

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Britain’s economy is full steam ahead, declares Bank of England

UK economy is recovering from the coronavirus recession faster than expected as the vaccine rollout continues, the Bank of England will declare this week.

The central bank, led by Governor Andrew Bailey, looks set to raise its growth forecasts for the UK when it publishes its latest monetary policy report on Thursday.

In its last update in February the Bank pencilled in a 5 per cent rise in output this year following the 9.8 per cent slump in 2020. Unemployment was also slated to rise to 7.8 per cent.

But with the outlook improving, this looks too pessimistic.

Howard Archer, chief economic adviser to forecasting group the EY Item Club, said: ‘The economy looks to have started the second quarter very much on the front foot, benefiting from easing of restrictions and the continued vaccine rollout.

‘The further near-term support to the economy provided in March’s Budget also seems to have lifted confidence.

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‘Significantly, the labour market is showing resilience and survey evidence points to more confident businesses being prepared to take on workers.’ Goldman Sachs last week said it expected the UK economy to grow by ‘a striking’ 7.8 per cent this year – the fastest post-war rate of growth. It would see Britain leave the US and the eurozone in its wake.

In another sign of the UK’s recovery, the Institute of Economic Affairs (IEA) believes no ’emergency measures’ are needed to help pay off the £2trillion national debt pile.

In a report published today, the respected think-tank said tax hikes would be ‘futile’, and instead advised Treasury officials to focus on controlling spending and introducing measures to boost growth.

After analysing other periods when the national debt shot up – during the two World Wars and the Revolutionary Napoleonic Wars of the 18th-19th centuries – the IEA said: ‘Large-scale debt is far from unknown. And it would be misguided and futile to jump to tax-raising measures.

‘The debt can be coped with and the best way of doing that is to encourage economic growth… by removing unnecessary regulation and simplifying taxes.’

Though the Bank is unlikely to hike interest rates just yet, it is expected to slow the pace of QE at this week’s Monetary Policy Committee meeting.

Source: This is Money

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UK economy shrank by less than expected in January

The UK economy shrank by less than feared in January as the country went back into a coronavirus lockdown, official data showed, but trade with the European Union was hit hard at the start of the country’s new, post-Brexit trading relationship.

Gross domestic product in January was 2.9 percent lower than in December, the Office for National Statistics said.

Economists polled by Reuters had expected a contraction of 4.9 percent.

UK economy is likely to shrink by four percent in the first quarter of 2021, due mostly to the latest lockdown but also because of disruption caused by new, post-Brexit rules for trade with the European Union, the Bank of England said last month.

“Today’s figures highlight the impact the pandemic continued to have on our economy at the start of the year as we tackled the new variant of the virus – and I know this is a cause of concern for many,” British finance minister Rishi Sunak said in a statement.
He added that the vaccine rollout and his budget announced last week were reasons to be hopeful.

Samuel Tombs, an economist with Pantheon Macroeconomics, said Friday’s data and other more recent indicators suggested the UK economy might now be on course to fall by a less severe two percent in the first quarter.

The BoE is expected to keep its stimulus programmes on hold at the end of its March meeting next Thursday as it predicts that Britain’s vaccination programme – Europe’s fastest – will trigger a bounce-back in the economy in the coming months.

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Trade disruptions

The ONS data showed exports and imports from Britain to the EU plunged by the most on record although the ONS said a difference in the way the figures were gathered was causing a delay to some data.

Exports of goods to the EU, excluding non-monetary gold and other precious metals, slumped by 40.7 percent. Imports fell by 28.8 percent.

Many companies brought forward imports of goods late last year to avoid the risk of border disruption as the new UK-EU trading relationship began in early 2021 and global trade flows have been hit by the coronavirus pandemic.

The ONS said the overall GDP figures were hit hard by the impact of social distancing rules on Britain’s huge services sector.

“The economy took a notable hit in January, albeit smaller than some expected, with retail, restaurants, schools and hairdressers all affected by the latest lockdown,” Jonathan Athow, an ONS statistician, said.

“Manufacturing also saw its first decline since April with car manufacturing falling significantly. However, increases in health services from both vaccine rollout and increased testing partially offset the declines in other industries.”

Britain’s economy shrank by 1.7 percent in the three months to January, a smaller fall than a median forecast of a contraction of 2.5 percent in the Reuters poll.

The economy was 9.2 percent smaller than in January last year, the ONS figures said.

Easing restrictions

Prime Minister Boris Johnson plans to ease England’s coronavirus restrictions gradually before lifting most of them by late June.

Growth in the next few months is also likely to get a boost from Sunak’s announcement last week that he will pump a further 65 billion pounds into the economy, including an extension of his jobs-protecting furlough scheme.

The ONS said Britain’s dominant services sector – which has been hit hard by social-distancing rules – shrank by 3.5 percent in January from December. The Reuters poll had pointed to a 5.4 percent contraction.

Manufacturing contracted by 2.3 percent but construction output rose by 0.9 percent.

The monthly fall of nearly three percent in GDP in January was much less severe than its plunge of 18.3 percent in April last year when Britain went into its first coronavirus lockdown.

Many companies have adapted to life under lockdown, including retailers who have ramped up their online shopping operations and services firms who have tried to help workers to do their jobs from home.

Source: Al Jazeera

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FTSE 100 falls and pound plunges as Tier 4 lockdown puts UK economy back into hibernation and Brexit talks drag on

The FTSE 100 was set to fall nearly 1% in early trading today as sterling plunged following Boris Johnson’s shock U-turn on Covid-19 lockdowns at the weekend.

The sudden and dramatic change of government rules over swathes of the South East wrongfooted investors and chief executives alike, sending early calls on the FTSE down 54.6 points to 6462 on the IG Index spread betting platform.

That fall would have been deeper were it not for sterling also plunging – a factor that generally helps FTSE shares because big company earnings are largely generally in dollars, so a weak pound makes them stronger when translated back into pounds.

The pound fell 1.2% this morning during Asian trading with both the lockdown measures and continuing stalemate on the Brexit trade talks hitting the market’s view of Britain’s economic prospects.

The pound fell to $1.3360, further pressurised downwards by dollar strength on the back of a deal from Washington politicians over a $900 billion covid stimulus deal to boost the US economy.

Relief that a deal had been struck after so many months of stalling negotiations meant markets could now focus on Brexit trade talks and the West’s varying response to Covid.

As borders closed to UK travellers over fears of the British mutant strain of the disease, share prices were expected to plunge as trade was set to be jammed at UK ports.

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Freight transport was already backing up badly at Dover on Saturday due to traders’ attempts to stockpile ahead of the end of the Brexit transition period next week, but that was worsened by border stops by Germany, France, Italy, Belgium, Austria, Ireland and the Netherlands.

Dover usually handles 10,000 trucks a day but France yesterday put an immediate 48 hour ban on entry, jamming the crucial Dover-Calais route.

Half of all goods traded between the UK and EU and 90% of truck traffic cross on that route.

The hope is that the EU will have formulated a response to the UK mutant virus by tomorrow, involving Covid tests prior to departure from Britain.

While hauliers were still allowed to enter the UK, truck companies from the continent were delaying shipments for fear that they may not be allowed to return.

Eurotunnel, Port of Dover and Eurostar all shut the UK-France route yesterday.

Shares in easyJet, British Airways owner IAG and Ryanair were all expected to fall sharply, along with hoteliers such as InterContinental and Premier Inn owner Whitbread.

However, investors with longer term horizons still believe the vaccines will make 2021 a strong year for economic growth and company profits, so any short-term share price falls are likely to be leaped upon by bulls seeking bargains.

Further concerns over TalkTalk’s lowball takeover by Toscafund were heightened today as The Times revealed that the hedge fund had told its investors in the summer that it would make strong returns on its investment in the firm at a far higher price than it is offering to buy it for.

By Jim Armitage

Source: Evening Standard

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Will the BoE inject more stimulus into the UK economy?

The BoE is preparing to announce its latest interest rate decision tomorrow, as it closely monitors the UK economy’s rebound from the record 20.4 per cent contraction in the second quarter.

Since then, there have been many positive signs. The economy grew by a huge 8.7 per cent in June and another 6.6 per cent in July. More recently, Britons were enticed to the high street by August’s Eat Out to Help Out scheme.

But there are challenges on the horizon. First and foremost is the worrying rise in coronavirus cases and new restrictions. Inflation also fell to 0.2 per cent in August, well below the Bank’s two per cent target.

That’s a lot for the Bank of England to consider. And analysts are united in saying the BoE will leave interest rates on hold at 0.1 per cent and its bond-buying target at £745bn.

They say that the Bank is more likely to increase stimulus in November after seeing how the economy and inflation fare.

Further stimulus will wait until November

“Even if the Bank felt more loosening was ultimately going to be required, we see little benefit to the Bank announcing it now,” said George Buckley, chief UK economist at Nomura in a note to clients.

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Buckley pointed out that the Bank’s current bond-buying programme is scheduled to be completed around December. So, he said, “why not wait until the November meeting when the MPC [monetary policy committee] will have the luxury of analysing another seven weeks of economic data?”

Howard Archer, chief economic adviser to the EY Item Club, agreed. “There seems little need for further MPC stimulus action – for the time being at least,” he said.

“It currently looks very possible that GDP growth in the third quarter could be around 15 per cent following the record 20.4 per cent contraction in the second quarter.”

Analysts say that if the Bank decides to act in November, as many predict it will, it is likely to increase bond-buying rather than cut interest rates further.

Bank could take a ‘dovish turn’

In August, the Bank predicted economic growth would be better than expected in the near term. Yet it was more pessimistic longer-term, saying the economy would regain its pre-pandemic size at the end of 2021.

Its forecasts were more upbeat than most, however. Jacqui Douglas, chief European macro strategist at TD Securities, said in a note that the Bank therefore could well take a “dovish turn” tomorrow. She predicted there will be “more focus on the downside risks to growth going forward”.

Although the Bank is not publishing any new forecasts, it has tended to enlarge on its decisions in a statement.

Douglas said: “The downside risks to the outlook have come into sharper focus.” She cited “an upcoming wave of job losses to the challenge of controlling Covid outbreaks to Brexit negotiations”.

UK inflation also dropped to 0.2 per cent in August, dragged down by the Eat Out to Help Out discount meal scheme. But that was better than the Bank had expected.

Nomura’s Buckley said that there is a chance Jonathan Haskel or Michael Saunders could vote for more bond-buying during this meeting. They have traditionally been more dovish MPC members, and Saunders recently said it is “likely” more easing will be required.

What has the Bank of England done so far?

The Bank slashed interest rates to a record low of 0.1 per cent from 0.75 per cent in two special meetings in March.

It also beefed up its quantitative easing programme – through which it creates money and buys bonds to keep borrowing costs low – to £645bn in March. The Bank then increased its bond-buying target to £745bn in June.

The MPC has also put negative interest rates in its “toolbox” of possible measures for the first time.

However, at its August meeting it did not sound too keen to actually get them out and use them. It said that “negative policy rates at this time could be less effective as a tool to stimulate the economy”. The Bank added that “the MPC has other instruments available”.

By Harry Robertson

Source: City AM