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Return to the office boosts UK economy: Services sector clocks up one of its best months since Covid restrictions ended

Britain’s dominant services sector has clocked up one of its best months after Covid restrictions ended and workers returned to the office.

In an upbeat report on the state of the UK economy, S&P Global said its closely-watched index of activity in the sector rose to 62.6 in March, well above the 50 mark that divides growth from contraction.

It was the second strongest reading for 25 years, only beaten by the post-lockdown recovery last May – boosting hopes that the country can weather the cocktail of threats hanging over the global economy from the war in Ukraine to soaring prices.

Firms in the sector, from train operators and estate agents to restaurants and hairdressers, were boosted by workers returning to the office, the report said.

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The UK fared far better than the eurozone, which is still held back by worries about the pandemic and recession.

Tim Moore, economics director at S&P Global, said companies specifically mentioned ‘stronger demand arising from the return to offices, alongside a resurgence in the travel, leisure and entertainment sectors’.

But businesses fear rising inflation would squeeze their profit, and optimism for the year ahead was at its lowest level since 2020.

A mixture of factors, from supply chain bottlenecks to a reduction in supply of fuels from Russia, has bumped up costs.

The rate of inflation in prices charged in March was the steepest since the indexes began in 1996.

This will come as a blow to households who were looking forward to getting out and about, following the end of Covid restrictions, as the cost of everything has gone up.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, which compiled the report with S&P, said: ‘People returned to work and had a flutter of spending on hospitality and entertainment before energy and fuel prices increase in April and potentially purse strings are tightened again.’

He added that there were ‘fewer reasons to be cheerful this month’, despite a ‘stellar recovery’, as the cost of living surges.

Workers in the services sector were helped by a rise in job creation in March, as staffing numbers leapt at the fastest rate since October. Even so, businesses are struggling to find the right staff.

Moore said many businesses said they were yet to pass on the full extent of cost spikes.

In the eurozone, S&P said exports were declining as the war hit travel and transport.

Chris Williamson, chief business economist, said: ‘A recession [in the eurozone] is by no means assured, as the extent to which the economy could suffer in the coming months will depend on the duration of the war and any changes to fiscal and monetary policy.’


Source: This is Money

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UK economy back close to pre-pandemic levels, says ONS

The UK economy grew at a rate of 1.3% in the last three months of 2021, a faster pace than first thought and bringing GDP to just below pre-pandemic levels.

The Office for National Statistics (ONS) had previously estimated GDP grew by 1.0% between October and December last year.

“GDP grew a little stronger than we first thought in the fourth quarter, meaning it is now only 0.1 per cent below its pre-pandemic level,” said Darren Morgan, the ONS director of economic statistics.

The UK’s economy grew by 7.4% last year in a record rebound from a devastating 2020, according to the latest ONS estimates, but just missed the 7.5% initial estimate.

The ONS also revised its estimate of how much GDP collapsed at the start of the pandemic – drawing the number down from 9.4% to 9.3%.

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The news comes amid a cost of living crisis in the UK, with living standards set for their largest drop on record thanks to a perfect storm of rising inflation, the economic hit of the pandemic and Russia’s invasion of Ukraine.

Wages are failing to keep up with rising prices, according to the UK’s fiscal watchdog, as rapidly rising energy prices push inflation towards 9%, its highest level in 40 years.

According to the Office for Budgetary Responsibility (OBR), Russia’s invasion of Ukraine has had “major repercussions for the global economy, whose recovery from the worst of the pandemic was already being buffeted by Omicron, supply bottlenecks, and rising inflation”.

The war has left oil and gas prices far higher than their historical averages – a fact that will “weigh heavily on a UK economy that has only just recovered its pre-pandemic level”, the OBR said in its report released on Wednesday.

Higher energy bills will lead to further inflation, which in turn will put pressure on household consumption and erode incomes.

Coupled with rising taxes, this fall in spending power will lead to a decline of 2.2% in living standards this year and next – the largest fall on record.

As a result, living standards will not recover to their pre-pandemic level until 2024-25, the OBR added

Source: Sky News

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UK economy: What’s next for inflation, output and the pound?

As the UK economy has dealt with the blows of the Covid pandemic and Russia’s invasion of Ukraine, the Bank of England has had to roll with the policy punches in its effort to pursue financial and economic stability.

Amid an atmosphere of enduring conflict in the East and inflationary pressures, Bank of England governor Andrew Bailey spoke with Breugel director Gundstrom Wolff, laying out the present environment in the UK and how policy can stabilise finance, the economy and currency in the wake of a large-scale military clash, a pandemic and the UK-specific development of Brexit.

Bailey said that the present “shock from energy prices” was historic, greater than any single year of the inflation-stoked 1970s, albeit with the caveat that that decade featured several rough years in succession.

“In the UK, and indeed elsewhere, we are very much facing a very large shock to aggregate real income and spending. That is not something that we have a policy toward that can make it go away,” Bailey said. “It’s coming through energy prices, through imported goods, through some food and is very much what we’d tend to call trade shock in that sense. Inflation measures are well above target. Unfortunately, I think it’s best to think that there is some more to come on that front.”

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“We expect it to cause growth and demand to slow. We’re beginning to see the evidence of that in both consumer and business surveys,” Bailey added.

Tradeoff, unconventional shocks

Bailey said that the Central Bank’s goal was to return inflation to its target “a couple of years out” and ensure that real adjustment occurs sustainably with minimal volatility and disruption. Bailey also said that the BOE and its contemporaries around the world remained committed to a globalised, integrated economy, much as they were during the widespread financial crisis more than a decade ago.

Bailey focused primarily on the disruptions of the pandemic and the dispute between Russia and Ukraine, stating that those two globally impactful events overshadowed and muddied any comprehensive analysis of Brexit’s effects on the UK’s economy and trade.

He said that thus far he felt the Central Bank’s planning had been effective in the face of the harrowing Covid era, the calmer-than-expected Omicron variant period and pandemic recovery, which resulted in a tight labour market and an unforeseen buildup of personal savings.

He said, however, that those with fewer economic means bore a disproportionate brunt of the current circumstances because they did not benefit generally from the surge in savings while simultaneously experiencing greater exposure to rising energy costs.

A resolution to the crisis in Ukraine would go a long way toward solidifying the UK’s position and stabilising energy and commodities markets, Bailey said, though near-term pressure could make the situation worse before it improves.

Now approaching a month old, the conflict has brought a deluge of question marks, which Bailey said caused the BOE to revise its guidance regarding “further modest tightening” in the form of interest-rate hikes from “likely to be appropriate” to “may be appropriate.”

“We’re facing a very big shock, by any historical standard. We’ve got a very large tradeoff between inflation and output activity, with the two moving in opposite directions. There is a very high level of uncertainty,” Bailey said.

Behind the curve?

In prior instances of market shock, Bailey said that the current policy would be behind the curve, facing pressure to accelerate counter-inflationary measures, including rate hikes.

However, he said, this was not a typical instance of a demand shock, with some favourable economic indicators as well as the large scale of the disruptions giving some pause and cause for caution to policymakers.

“We’ve got a pandemic followed by a European war, on any scale that is a very difficult position to be in for policy. The task we have is clear, but it’s hard, but we will stick to it and all central banks are committed on that front,” Bailey said. “In our case, it’s appropriate to tighten policy in these circumstances, but we do so recognising the uncertainty.”

Forex implications, long-term prognosis

Bannockburn Global Forex chief strategist Marc Chandler assessed the broader strategy in the UK and its impact on the pound, which has produced a mixed forecast and tepid results in recent days even as stable currencies have been attractive to risk-off investors.

“Sterling has underperformed here in March. It is the second weakest major fx, off 2.45%, well less than the Japanese yen’s 7.1% decline. The Bank of England hiked rates but softened its guidance, and the market does not think it can keep pace with the (US Federal Reserve),” said Chandler, noting that the US two-year premium over the UK doubled in March, around 100 basis points and that he saw the pound as “heavy,” poised to drop to $1.28 or $1.29 from its present position near $1.38.

Bailey emphasised repeatedly the need for collaboration among central banks around the world in a globalised economy. Yet as tones grow more hawkish in many countries, including the US and Canada, the UK has opted for prudence.

“At the end of the day, Bailey talks like a hawk and acts dovishly,” Chandler said. “There are shades of former Bank of England governor Mark Carney, who was often talked about as the bad boyfriend who over-promised and under-delivered.”

By Andrew Knoll

Source: Capital

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Sunak says UK economy to grow more slowly in 2022, inflation to jump

UK economy will grow more slowly this year than previously predicted and inflation will be much higher, finance minister Rishi Sunak said as he gave a budget update which included measures to ease a cost-of-living squeeze.

Sunak, announcing forecasts drawn up by the Office for Budget Responsibility (OBR), said on Wednesday the economy was likely to grow by 3.8% in 2022, a sharp slowdown from a forecast of 6.0% made in October.

Inflation, as measured by the consumer price index, is now seen at 7.4% in 2022, compared with October’s forecast of 4.0%.

Sunak is under pressure to offer more help to Britons who are facing their worst cost-of-living squeeze in at least 30 years and he announced a cut to fuel duty of 5 pence per litre starting later on Wednesday and lasting until March next year.

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Earlier, data showed Britain’s consumer price inflation hit a 30-year high of 6.2% last month, driven by soaring costs for energy and food, which poorer households especially may find hard to cut back on.

The International Monetary Fund estimates British gross domestic product will grow by 4.7% in 2022, the fastest among Group of Seven nations. The UK economy suffered a COVID-19 slump of more than 9% in 2020 and grew by over 7% in 2021.

The OBR forecast that gross domestic product would grow by 1.8%, 2.1% and 1.8% in 2023, 2024 and 2025, Sunak said.

In October, the OBR had forecast growth of 2.1%, 1.3% and 1.6% over the next three years.

Writing by William Schomberg

Source: ZAWYA

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Soaring inflation is biggest financial worry among UK adults

The biggest financial concern of UK adults, in both the short and longer term, is rising inflation, according to new research from M&G Wealth.

A quarter (25%) of people surveyed cited rising inflation as their greatest financial concern this year, while just more than one in five (22%) respondents said rising inflation was their biggest financial worry for the next five years.

M&G Wealth’s latest research which quizzed 2,000 UK adults who have personally, or who have parents or grandparents who received financial advice from an adviser in the last five years, looked at how individuals felt about their savings habits as the cost of living rises.

Unsurprisingly, the research found respondents were more focused on their short-term financial needs. Beyond rising inflation, worries included ‘my investments losing money’ (18%) and ‘not saving any money’ (17%).

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The cost of living played heavily on the minds of respondents. More than a quarter (26%) surveyed said they were worried the cost of living will go up, and so preventing them saving as much as they would like to, while 18% said their bills were too high to allow them to save more.

Savings rates overall were less than desirable. Some 14% of adults save less than £50 per month, and nearly a fifth (18%) of those surveyed said they could not afford to save more.

Looking to respondents’ ‘rainy day fund’, the picture was a little brighter. Nearly a quarter (23%) of those surveyed said they had more than a year’s expenses set aside. However, a third (33%) of respondents had expenses to cover three months or less saved, and 8% of respondents had nothing saved at all.

Les Cameron, savings expert at M&G Wealth, said: “While consumers have no control over rising inflation, currently at a 30-year high and predicted, by the Bank of England, to reach over 7% by the spring, there are steps they can take to take control of their finances.

“From energy bills to their weekly shop, families are starting to feel the pinch, and as a result are unable to save as much as they would like. Many are taking practical steps such as shopping around for cheaper prices to bring down the cost of basics like bread and milk, and setting out and sticking to a budget will help families feel more in control of their spending in the short-term. Though it may feel difficult at the moment, investing any savings, no matter how little, will provide a long-term benefit and hopefully some peace of mind for the future.

“When it comes to savings consumers are understandably worried. Current savings rates are lower than inflation, meaning those with significant cash savings really need to consider whether to accept that inflation is eroding the value of their money, or take some investment risk to try to maintain or grow the real value of their money. Investing is not, however, a decision to be taken lightly and is an area where most people could benefit from receiving some form of financial advice or guidance before going ahead.”


Source: IFA Magazine

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Possession claims look set to double amid cost of living crisis

Possession claims look set to double this year due to a combination of benefits freezes, soaring food and energy bills and the end of Covid eviction bans.

The number of possessions in the private rented sector could jump by more than 40,000 this year year, a well-known evictions expert has has predicted as landlords take action to protect their property investments.

Landlord Action’s Paul Shamplina told ITV’s Tonight programme: “The courts are getting better at processing possession cases, but even now the eviction restrictions have been lifted, it will take a landlord the best part of six months to get their property back.”

Tonight, which airs today at 8.30pm on ITV, looks at the PRS where thousands of people risk losing their homes.

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The buy-to-let market has seen a number of regulatory changes in recent years, particularly during the pandemic with eviction suspensions and extended notice periods but, with the ban on bailiff-led evictions at an end and a growing cost of living crisis, there is a new wave of imminent evictions looming.

Shamplina provides an exclusive insight into evictions and arrears by showing viewers the real-life eviction process as well as exposing the different elements that are causing the volume of possession claims to increase.

He takes along ITV’s political correspondent Daniel Hewitt as he serves notice to a number of tenants, including one tenant living at a property in Harrow who had significant rent arrears, and an eviction in Hounslow featuring a tenant in serious arrears.

Shamplina added: “The Tonight programme really portrays the level of claims we’re seeing right now, provides the reality of how both landlords and tenants alike are struggling and looks at what the government can do to help with this tougher economy in 2022 and beyond.”


Source: Property Industry Eye

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Bank of England poised to raise interest rates as high inflation takes toll

Interest rates are expected to increase this week for the third time in three months as the Bank of England tries to curb a rapid rise in the cost of living.

A hike to 0.75% from 0.5% is anticipated, which would return us to the level of March 2020 but comes against the backdrop of geopolitical volatility and the likelihood that inflation will exceed 7%.

Rising gas and electricity costs are the main factors pushing up prices across the economy.

Inflation, as measured by the consumer prices index (CPI), is expected to peak at 7.25% in April, and average close to 6% in 2022.

Despite inflationary pressures, demand for property remains strong.

The latest figures show that the number of new prospective buyers in the UK was 47% higher than the five-year average in the first week of March. The figure for the first nine weeks of the year was up by 54%.

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Meanwhile, the number of offers accepted was up by 81% in the first week of March, having risen 50% over the first nine weeks of the year.

Much-needed housing supply is also showing signs of picking up, with the number of market valuation appraisals 11.3% higher in the first nine weeks of the year. Sales instructions are catching up but were down by 6.3% over the same period.

Why is the market so active despite the current economic and political backdrop?

Tom Bill, head of UK residential research at Knight Frank explained: “The first reason is easily overlooked – the end of the pandemic. The lifting of final restrictions and return to normality is spurring people to take decisions about how and where they live. Crucially, it means demand is more needs-driven and less susceptible to external events.

“In higher-value property markets, larger bonuses in sectors including financial services and law have also provided some insulation against the spiralling cost of living.”

But growth is not limited to a narrow group of professions, according to Savvas Savouri, chief economist at Toscafund.

He believes challenger banks will drive competition in the mortgage market and put downwards pressure on rates in the same way Aldi and Lidl did in the supermarket sector.

Savouri commented: “Households are sitting on £250bn of excess savings compared to the start of the pandemic. House price growth has also created an extra £1trn in housing equity over the last two years.”

He expects the Bank of England base rate to end the year at 1.25% or 1.5% as the current uncertainty leads to a slightly shallower upwards trajectory. However, he remains bullish in his outlook for the UK economy this year.

“For a recession, you need the labour market or the banking system to collapse and we are nowhere near either,” he added.

Knight Frank expect house price growth to return to single-digits as supply continues to pick up and rates normalise, but the estate agency says that it seems unlikely it will get anywhere close to zero.


Source: Property Industry Eye

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UK GDP recovered in January after Omicron hit

The British economy expanded in January by 0.8 percent, exceeding its pre-pandemic peak by the same amount, the Office for National Statistics announced Friday.

That’s also a jump from December, when output fell by 0.2 percent as the Omicron variant weighed on economic activity.

“All sectors grew in January, with some industries that were hit particularly hard in December now performing well, including wholesaling, retailing, restaurants and takeaways,” said Darren Morgan, head of economic statistics. Software engineering and video production “also had a good start to the year.”

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Construction and manufacturing contributed to growth as well, he said.

However, analysts cautioned that the spurt of growth could be short-lived due to global factors. Capital Economics, a consultancy, said in a note that while February’s numbers are likely to be positive as well, “the cost of living crisis and the influence of the war in Ukraine probably means this is as good as it gets for the year.”

Chancellor Rishi Sunak also reacted with caution in a press release, warning that the war in Ukraine is affecting the outlook.

“Russia’s invasion of Ukraine is creating significant economic uncertainty and we will continue to monitor its impact on the U.K.,” he said. “But it is vital that we stand with the people of Ukraine to uphold our shared values of freedom and democracy and ensure Putin fails.”


Source: Politico

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Inflation to accelerate far ahead of Bank of England’s target as rate hikes loom

Inflation in the UK will soar far above the Bank of England’s target this year as the Russia-Ukraine war drives energy prices to record highs.

Accelerating prices will hit “almost all businesses and consumers” this year and choke economic growth, Thomas Pugh, an economist at RSM, warned today, adding that the cost of living could climb as high as nine per cent.

Surging oil and gas prices sparked by the Russia-Ukraine war has led economists at RSM to predict the energy watchdog could hike the price cap a further 75 per cent in October.

Threadneedle Street will trade off shielding economic growth and in exchange for taming inflation by hiking rates at each of its next four meetings and send borrowing costs to 1.75 per cent by November, according to Bank of America.

Rates have not been that high since December 2008, underlining how concerned the Bank is about the cost of living pulling ahead of its two per cent target.

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Communication gaffes over the last year have “undermined [the Bank’s] ability to use words to control expectations,” analysts at Bank of America said.

As a result, lifting rates will be the Bank’s main tool to curb price rise expectations.

Poor wage growth coupled with elevated inflation will erode real incomes at one of the steepest rates in peacetime, Bank of America said, adding that household consumption, which accounts for around 60 per cent of UK output, will stagnate for the next 12 months.

Both RSM and Bank of America slashed their forecasts for UK GDP growth this year.

Commodities are widely used by producers across the economy, meaning higher prices will leave them with the choice of either operating with lower profit margins or raising prices to offset higher costs.

The latter increases the risk of creating conditions in which a wage/price could occur, in which workers demand higher pay to maintain their living standards, leading firms to raise prices even further.

Inflation is already at a 30 year high, hitting 5.5 per cent in January.


Source: City AM

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UK’s economic growth to halve this year says British Chambers of Commerce

UK’s economic growth will halve this year as a result of soaring inflation, hefty tax rises and the destabilising shock from the war in Ukraine, a leading business lobby group has warned.

In the first major forecast of the UK economy since the Russian invasion of Ukraine, the British Chambers of Commerce (BCC) said it expected an inflation rate of 8% to cut disposable incomes in 2022, putting the brakes on the recovery from the pandemic.

In its previous forecast, the BCC expected GDP to expand by 4.2%, but after a wide ranging review it said growth would fall to 3.6% – less than half the 7.5% expansion in national income seen last year.

The BCC said the size of the economy would surpass its pre-pandemic level over the next few months, but was likely to struggle as consumer confidence, which collapsed last month as the full weight of the cost of living crisis became clear, dropped further over the coming months.

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Suren Thiru, head of economics at the BCC, said he now expected inflation to peak at 8% and interest rates to increase to 1.5%, adding to the burden on households and companies, already battered by two years of Covid.

“Our latest forecast signals a significant deterioration in the UK’s economic outlook,” he said.

He described the effects of rising inflation, supply chain disruption and higher taxes as having a suffocating effect on the UK economy that would see growth “run out of steam in the coming months”.

“Russia’s invasion of Ukraine is likely to weigh on activity by exacerbating the current inflationary squeeze on consumers and businesses and increasing bottlenecks in global supply chains,” he said.

The downgrade largely reflects a deteriorating outlook for consumer spending and a weaker than expected rebound in business investment, he added.

Unlike in the US and most other European economies, Rishi Sunak’s attempts to boost investment using tax breaks and subsidies have failed. Last year business investment declined despite the offer of a 130% tax break on spending on new plant, machinery and technology.

Business investment is forecast to grow at 3.5% in 2022, the BCC said. “This is down from the previous forecast of 5.1% and materially lower than the Bank of England’s latest projection of 13.75%.”

The anaemic increases in business investment will mean it remains 6% lower than its pre-pandemic level by the end of 2024. UK exports are expected to remain 13.7% (or £25.5bn) lower than their pre-pandemic level by the end of 2024, reflecting “the impact of post-Brexit trade friction and a weakening global outlook on demand for UK goods and services”.

Consumer confidence fell last month to lows not seen since the third lockdown in January 2021, according to the latest GfK survey.

The BCC said consumer spending would grow in 2022, but at a much slower pace than it forecast last year. It estimated consumers would spend at 4.4% more than in 2021, down from its previous forecast of 6.9%.

Analysts at Bank of America said last week that UK households could suffer the biggest annual decline in their living standards since the 1950s after the sharp rise in energy prices.

With inflation already at the highest rate for 30 years, the analysts said a sustained rise for wholesale oil and gas markets due to the Russian invasion of Ukraine could trigger a drop in household real incomes of 3.1% in 2022 compared with a year earlier – the biggest annual drop since at least 1956, the year of the Suez crisis.

The BCC said it expected inflation to outpace wage growth until the second quarter of 2024, making the squeeze on household finances even worse than the most pessimistic predictions.

Some economists have argued that better off households, who have saved around £220bn during the pandemic, would use those savings to boost spending over the next year, but Thiru said the decline in consumer confidence would “limit households’ willingness to empty their deposit accounts.

By Phillip Inman

Source: The Guardian

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