economic recovery

UK output slowed in February indicating the economic recovery was weaker than thought even before the additional surge in inflation triggered by Russia’s invasion of Ukraine.

Figures from the Office for National Statistics show monthly gross domestic product (GDP) expanded by just 0.1 per cent as the rebound in tourism-related industries was offset by a reduction of activity in the healthcare sector and declines in industrial and construction output. Manufacturing slumped amid supply chain constraints that have left car producers and others struggling to source vital components and materials.

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February’s growth was down sharply on the 0.8% expansion recorded the previous month, and also undershot analysts’ consensus forecast of 0.3%.

GDP is now 1.5% above its pre-pandemic level of February 2020, but there are growing concerns that the economy could slip into recession as pressure on consumer spending mounts. Household consumption is the largest element of expenditure across the UK economy, accounting for 59% of the total in 2021.

“The news that the economy was hardly growing at all in February suggests the economy had a little less momentum in Q1 than we had previously thought, and increases the risk of a contraction in GDP in the coming months as the squeeze on household real incomes intensifies,” said Ruth Gregory, senior economist at Capital Economics.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said labour shortages, rising borrowing costs and flagging business investment have made an upward shift in overall productivity “elusive”.

“Although the economy is 1.5% above its pre-pandemic level, the underlying health may be weaker particularly because increased healthcare activity has been the crutch supporting the economy during the pandemic,” she said.

“The main contributor to the recovery since the start of the crisis has been human health and social work activities and the reduction of the test and trace scheme and vaccination programme partly accounted for the slowdown in February.”

Chancellor Rishi Sunak – whose popularity has slumped after offering only limited support to consumers weathering the inflationary storm – welcomed the continued growth. However, some economists believe the economy is set to shrink in the coming months.

James Smith at ING predicts GDP will come in at roughly 1% for the first quarter before a “small contraction” of up to 0.3% during the three months to June. Thereafter, the “jury’s out” on whether this will evolve into the technical definition of a recession, which would require a subsequent fall in GDP in the third quarter of the year.

Samuel Tombs of Pantheon Macroeconomics is also predicting a 0.3% decline in the second quarter, which he believes will persuade the Bank of England to stop raising benchmark interest rates after an increase to 1% next month.

Activity in the manufacturing sector fell 0.4% in February, led by a 5.4% drop in the production of transport equipment and a 4.3% decline in computer, electronic and optical products. Both have been disrupted by global shortages of microchips.

Tourism rose sharply as easing pandemic restrictions led to an increase in people booking holidays in the UK and overseas. Travel agencies and tour operators recorded growth of 33%, while hotels were up by 23%.

The Office for National Statistics said the impact of storms Dudley, Eunice and Franklin, which all hit the UK between the 16th and 21st of February, may have also weighed on growth.

“Most of those reporting a negative impact were in service industries with comments received from businesses operating in areas including accountancy, leisure parks and holiday centres, photography, hairdressing and beauty, leasing of construction equipment, restaurants and takeaways, and marquee hire,” the ONS said.

“However, some businesses reported a positive impact on turnover such as those working in fencing, torch sales, and temporary off-grid power.”

BY KRISTY DORSEY

Source: Herald Scotland

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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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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.”

BY MATEI ROSCA

Source: Politico

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The UK economy grew 7.5% in 2021, official figures revealed Friday, rebounding from its historic 9.4% plunge in 2020 when pandemic restrictions stifled activity.

On a quarterly basis, U.K. GDP (gross domestic product) is estimated to have increased by 1% in the final three months of the year. It follows a downwardly revised 1% increase the previous quarter, the Office for National Statistics (ONS) said on Friday.

In December, GDP contracted by 0.2% as the omicron Covid-19 variant forced renewed caution and containment measures, though economists polled by Reuters had expected a more severe 0.6% contraction.

The largest contributors to the quarterly rise in output were from “human health and social work activities driven by increased GP visits at the start of the quarter,” according to the ONS, along with a “large increase in coronavirus (Covid-19) testing and tracing activities and the extension of the vaccination programme.”

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The ONS said economic output in the fourth quarter remained 0.4% below its pre-pandemic level (in the fourth quarter of 2019).

“The UK’s self-imposed lockdown to ‘protect Christmas’ has turned out to have only a mild impact on growth in December. This is an encouraging sign for the health of the economy,” said Emma Mogford, fund manager of the Premier Miton Monthly Income Fund.

Though the omicron variant did not present the significant setback initially feared in November, the UK economy faces a raft of challenges in 2022.

The Bank of England now expects inflation to peak at 7.2% in April and has imposed back-to-back interest rate hikes for the first time since 2004, taking the main Bank Rate from 0.1% to 0.5%, with more tightening expected.

Meanwhile, the country’s energy regulator has increased its price cap by £693 ($938) per year from April 1 because of soaring energy prices, placing further strain on millions of households.

The Bank of England also slashed its GDP growth forecasts last week, cautioning that the impact of inflation means the economy is likely to grow 3.75% in 2022 instead of the 5% it previously projected.

“The cost of living has become a big concern for millions of people and if it continues for a sustained period of time, it will be harmful to the wider economy,” said Annabelle Williams, personal finance specialist at British online investment management firm Nutmeg.

By Elliot Smith

Source: CNBC

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UK economy grew by a much stronger-than-expected 0.9% in November, finally taking it above its size just before the country went into its first COVID-19 lockdown, the Office for National Statistics said on Friday.

The world’s fifth-biggest economy was 0.7% bigger than it was in February 2020, the ONS said.

Economists polled by Reuters had forecast monthly gross domestic product growth of 0.4% for November.

“It’s amazing to see the size of the economy back to pre-pandemic levels in November – a testament to the grit and determination of the British people,” finance minister Rishi Sunak said.

Other economies have already recovered their pre-COVID size, chief among them the United States.

Despite November’s growth acceleration, GDP probably took a hit in December when the Omicron coronavirus variant swept Europe, and the loss of momentum is likely to have stretched into January with many firms reporting severe staff absences and consumers still wary of going out.

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But health officials think the Omicron infections wave has now peaked in Britain and analysts say the hit to the UK economy is likely to be short-lived, allowing the Bank of England to continue raising interest rates this year.

The ONS said, data revisions aside, GDP in quarterly terms would reach or surpass its pre-coronavirus level in the October-December period of last year, as long as economic output does not fall by more than 0.2% in December.

The ONS said architects, retailers, couriers and accountants had a bumper month in November and construction recovered from several weak months as raw materials became easier to source after problems in global supply chains.

Britain’s economy will still face challenges in the months ahead, even once coronavirus restrictions are relaxed.

“While the UK economy should rebound once Plan B measures are lifted, surging inflation and persistent supply chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022,” Suren Thiru, head of economics at the British Chambers of Commerce, said.

By Shepard Smith

Source: CNBC

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The United Kingdom’s economic recovery from the coronavirus pandemic slowed between July and September and is expected to be weaker than previously predicted in the coming months, largely because of supply-chain problems and higher energy costs.

Official figures from the Office for National Statistics, or ONS, show consumer spending increased as the UK emerged from pandemic-battling lockdowns, but other sectors of the economy shrank disappointingly.

Overall, growth during the three-month period stood at 1.3 percent, which was well down on the 5.5 percent recorded between April and June. The slowdown leaves the UK economy 2.1 percent smaller today than in the final quarter of 2019.

Grant Fitzner, chief economist at the ONS, told the BBC the service-sector growth was largely down to a tax holiday for property purchases.

“However, these were partially offset by falls in both the manufacture and sale of cars,” he said.

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The Guardian newspaper reported on Monday that EY Item Club had used the results, and other data, to predict the “tougher” part of the UK’s economic recovery is yet to happen.

EY said in its autumn forecasts there will be “higher and more sustained inflation” in the coming months, with rises in energy prices and supply chain disruption denting previous estimates.

EY said the UK’s GDP could rise by 6.9 percent this year, instead of the 7.6 percent it had expected. GDP fell by almost 10 percent last year. And EY said GDP growth in 2022 could run at 5.6 percent, instead of the 6.5 percent it had previously predicted.

Martin Beck, chief economic adviser to EY Item Club, told The Guardian: “With the boost from reopening the economy now largely passed, the UK was always expected to enter a tougher phase of the recovery. …Although inflation looks like it’ll peak higher－and stay higher for longer－than first anticipated, it doesn’t look like this will tip into ‘stagflation’; the combination of sluggish growth and persistent high inflation.”

But EY did have some good news. It said unemployment will likely run at 4.3 percent in the final quarter, instead of the 5.1 percent it had previously predicted.

Sky News added on Monday that recent disappointing economic data and a lack of investment had led the head of the Confederation of British Industry, or CBI, to say the British economy now feels second-rate.

Tony Danker said in a speech on Monday at the CBI’s annual conference that the government must find ways to deliver economic growth to all parts of the nation. “I don’t know a country in the world… where governments aren’t active in economic geography,” he said in an apparent swipe at London’s decision to cancel part of a planned upgrade of railway lines in the North of England.

Source: Hellenic Shipping News

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