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UK economy stalls with concerns that growth may shift into reverse

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.”


Source: Herald Scotland

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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 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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UK Economy Recovery Accelerates in February show PMIs, Locking in a March Rate Hike

The UK’s economic rebound accelerated faster than expected in February according to a leading survey, which noted “a swift rebound in UK economic conditions”.

The IHS Markit PMI survey for the UK showed both the manufacturing and services sectors expanded in February, with the Services PMI printing at 60.8, beating expectations for a reading of 55.5 and up on January’s 54.1.

The Manufacturing PMI read at 57.3, unchanged on January but up a touch on the consensus estimate of 57.2.

The Composite PMI – which rebalances the readings to give a more accurate snapshot of the broader economy – read at 60.2, ahead of consensus at 55.0 and January’s 54.2.

“The UK economy is rebounding from Omicron at a fair clip,” says Gabriella Dickens, Senior UK Economist at Pantheon Macroeconomics. “The forward-looking components of Markit’s survey suggest growth will remain brisk over the coming months.”

The rebound in UK economic activity was the fastest recorded in eight months and follows a slowdown caused by Omicron disruptions at the turn of the year.

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A recovery in consumer spending on travel, leisure and entertainment were major contributors to the bounce back.

IHS Markit reports hiring was strong as staff recruitment accelerated again in February in response to increased workloads and favourable growth projections.

The rate of private sector employment growth was the fastest since October 2021, which was largely driven by stronger job creation in the service economy.

The findings come ahead of the March 17 Monetary Policy Committee meeting at the Bank of England, where it is expected another interest rate rise will be confirmed.

Indications that the economic rebound is solid will bolster the MPC’s decision to raise rates and signal further hikes are likely, which analysts say is a supportive dynamic for Pound Sterling’s outlook.

“The combination of reviving economic activity and widespread price increases suggests that the MPC almost certainly will raise Bank Rate to 0.75% at next month’s meeting,” says Dickens.

“The PMIs suggest the economy shrugged off the hit from Omicron. And the tentative signs of easing supply disruptions and price pressures are encouraging too. But with CPI inflation far above the Bank of England’s 2% target and rising, we still expect Bank Rate to reach 1.25% by the end of this year and 2.00% by the end of next year,” says Adam Hoyes, Assistant Economist, at Capital Economics.

But there remain some concerns for the outlook as inflationary pressures are acute and exports continue to struggle, with IHS Markit saying Brexit-related trade issues remain a factor.

IHS Markit’s Chief Business Economist Chris Williamson says UK goods exports slumped in February, contrasting with accelerating export growth in the eurozone.

“UK exporters are consequently underperforming their peers in the eurozone to one of the greatest extents seen over the past 15 years as Brexit adds to UK trading headwinds,” says Williamson.

Nevertheless, IHS Markit reports production volumes in the manufacturing sector were helped by fewer raw material shortages and easing global supply chain pressures, according to survey respondents.

Easing of supply chain constraints are expected to ultimately translate into easing cost-push inflationary pressures later in 2022.

The findings come on the day the Government is expected to detail how the country intends to ‘live with Covid’ and announce a complete removal of all Covid-related legislation.

Stronger client demand was widely linked to improving confidence about the UK economic outlook and roll back of pandemic restrictions said IHS Markit.

Year-ahead business expectations meanwhile picked up for the third month, with businesses the most optimistic since May 2021.

IHS Markit says positive sentiment towards the business outlook was linked to a strong recovery in client demand after the Omicron wave, as well as long-term expansion plans and hopes that the worst phase of supply disruption has passed.

“The latest UK purchasing manager indices will tick a lot of boxes for Bank of England policymakers,” says James Smith, Developed Markets Economist at ING Bank. “It’s yet another hint that Omicron has done very little lasting damage to the UK economy, and the data is consistent with what we’ve seen with just about every other high-frequency indicator.”

Written by Gary Howes

Source: PSL

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UK economy grew 7.5% in 2021, mostly recovering from its pandemic plunge

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 gets moving again as diners and commuters return

The UK economy saw increased activity in the final week of January as the effects of the Omicron wave of Covid retreated and consumers saw the removal of Covid restrictions.

Near-term data from the ONS revealed the lifting of Plan B restrictions in England on January 27 helped the seven-day average estimate of UK seated diners increase by 9 percentage points in the week to 31 January 2022.

This was 106% of the level in the equivalent week of 2020.

In London and Manchester seated diners increased by 8 and 11 percentage points over the same period, respectively said the ONS.

The news indicates the all-important UK services sector – which accounts for over 80% of UK economic activity – is set for a recovery in February.

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The ONS says retail footfall in the UK increased by 2% from last week but was still at only 82% of the level seen in the equivalent week of 2019.

Nevertheless the ONS data shows this is the third consecutive week of increasing retail footfall and was again driven in part by weekly rises in high street footfall.

Consumers are spending again too; the aggregate CHAPS-based indicator of credit and debit card purchases – supplied to the ONS by the Bank of England – increased by 3 percentage points from the previous week, to 90% of its February 2020 average.

There were increases in all spending categories in the latest week, the largest of which were in “delayable” and “social” spending, both of which increased by 4 percentage points.

But, 69% of respondents to a regular ONS survey reported their cost of living had increased over the last month which was up slightly from the last period (66%).

Rising inflation and imminent tax and energy bill increases are all tipped by economists to place pressure on consumers in 2022, potentially denting the post-Covid economic recovery.

However the labour market remains in strong shape with the ONS saying the total volume of online job adverts on 28 January 2022 was at 141% of its February 2020 average level making for the third consecutive week-on-week increase.

This suggests a recovery following the dip in the volume of online job adverts over Christmas and New Year.

In all, the findings are consistent with an economy that is likely to recover in the first half of 2022, but the recovery will in all likelihood be stifled by rising costs.

Written by Gary Howes

Source: PSL

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UK economy finally bigger than before pandemic in November

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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UK economic bounce-back to weaken, analysts say

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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Shortages, inflation and slow growth fog UK economy

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

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

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

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


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

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

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


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


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

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

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


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

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

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


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

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

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

Reporting by Andy Bruce

Source: Reuters

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