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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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UK economy lost more momentum in August, PMI survey shows

UK economy – Britain’s economic recovery from the COVID-19 pandemic lost more momentum last month than originally estimated as staff shortages and supply chain issues weighed on companies in the country’s huge services sector, a survey showed on Friday.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 55.0 in August, revised lower from a preliminary “flash” reading of 55.5 and down sharply from 59.6 in July.

Overall the survey added to signs that British economic growth has slowed somewhat in the last month or so.

The PMI marked a fifth month above the 50 threshold for growth and a record share of services companies said they were hiring staff – but they also struggled against rising costs.

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“Many survey respondents commented on long wait times to fill vacancies and an unexpectedly high staff turnover as the UK economy reopened,” said Tim Moore, economics director at IHS Markit.

A separate survey published earlier on Friday by the Recruitment & Employment Confederation also showed employers were still hunting for more staff than they were just before the pandemic, added to signs of a tight labour market after COVID-19 lockdowns and Brexit.

IHS Markit said consumer demand slowed last month after an initial post-lockdown surge.

Others said a slowing property market caused by partial withdrawal of a tax break on home purchases, a lack of tourists and Brexit trade frictions dampened growth too.

The composite PMI, which combines the services and manufacturing sectors, fell to 54.8 in August from 59.2 in July.

Reporting by Andy Bruce

Source: UK Reuters

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The UK economy is on a bumpy road to full recovery

UK economy – The economic effect from Covid-19 wasn’t actually that bad, was it? That may seem an odd thing to ask in an economy that shrank by 25 per cent in little over a month last spring, and whose recovery lags major competitors.

However, after last week’s bumper GDP growth figures, it isn’t as wide of the mark as you might think.

In simpler times, the 4.8 per cent quarterly growth we experienced through the spring would be near-enough unprecedented.

With the economy “only” a little over 2 per cent smaller in June than it was pre-virus, it’s almost guaranteed that the full recovery from the Covid-19 hit will be considerably quicker than after the global financial crisis of 2008.

Then, GDP took five years to recover; this time it’ll be closer to two.

The economic charts from the past two years reveal what looks much more like a “V-shape” recovery than many economic commentators had dared predict.

Yet, it’s too early to pop the Champagne corks. Further strong gains in economic growth will be harder to achieve.

While the UK will reach pre-Covid levels of activity early next year, it will take much longer for the economy to get back to where it would have been, had the pandemic never happened.

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The biggest challenge will be keeping up confidence; rising optimism amidst a rapid vaccine roll-out undoubtedly helped boost consumer activity last quarter. But the Delta variant – and the resulting “pingdemic” – has tested the public’s appetite to shop and socialise.

People are slightly more reluctant to leave home, if you look at the regular Office for National Statistics (ONS) social survey, and the recent recovery in card spending and transport usage has also stopped firmly in its tracks.

Worrying headlines about NHS pressure over the winter is only likely to amplify the consumer caution that has crept back in over recent weeks.

That matters, because as the International Monetary Fund (IMF) argued last year, people’s individual decisions to stay at home have often had a greater effect on economic activity than lockdowns themselves.

There are other challenges, too, as unemployment is still likely to rise as the furlough scheme ends, despite what the Bank of England forecasts say.

Pictures of empty supermarket shelves don’t help either. That’s not just a Brexit/pingdemic problem. Global supply chain disruptions are hitting British producers and pushing up prices. Meanwhile, the Treasury is preparing to dial back economic support over the winter.

As Boris Johnson keeps telling us we’re not “out of the woods” as far as Covid is concerned, the same is perfectly true for the UK economy.

By James Smith

Source: iNews

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UK recovery still unsteady despite July job surge, finds report

The relaxation of lockdown rules in July sparked a surge of hiring among UK firms, but staff shortages caused by the pandemic and Brexit could still undermine the recovery, the professional services group BDO reported on Monday.

BDO’s latest business trends report found that the jobs market strengthened last month, as hospitality venues such as restaurants and bars were allowed to operate without Covid-related capacity limits.

But many firms reported labour shortages, partly due to the pandemic – with workers being told to self-isolate by the NHS Covid app – and Brexit, BDO said. This created a scramble for workers, pushing up wages and leaving bosses fretting about rising costs.

BDO’s employment index rose by 1.57 points, from 106.05 in June to 107.62 in July, showing the strongest pickup in hiring so far this year. Business optimism dipped back from the record high recorded in June, while BDO’s inflation index – which tracks rising prices – was close to June’s four-year high.

Pressure on global supply chains, and problems importing goods and materials due to the UK’s exit from the EU, both pushed up costs, BDO reported, along with rising wages as employers paid more to attract and retain talent.

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Some companies have recently introduced signing-on bonuses of up to £10,000 to attract job applications.

Last week, the Bank of England predicted that unemployment had peaked, with a tight labour market leaving some employers struggling to hire staff. The Bank also forecast that inflation would hit a 10-year high of 4% by the end of the year.

“The surge in employment is a timely boost and shows how quickly the relaxation of restrictions has impacted the economy,” said Kaley Crossthwaite, a partner at BDO LLP. “It now appears that one of the biggest problems faced by employers will be filling roles as both the pandemic and Brexit give rise to staff shortages.”

A separate survey from the accountancy firm Azets found that two-thirds of UK small businesses felt positive about the UK’s economic outlook over the next 12 months, with more than half of firms expecting to expand their workforces.

But the SME barometer also found a regional split, with 71% of London and south-east small firms feeling positive about the UK’s economic outlook, in comparison with 60% in Scotland and 59% in the north-east, north-west and Yorkshire and Humberside.

Many firms, especially outside London and the south-east, cited Brexit as a threat – along with the economy, Covid-19 and competition.

“After a year of deep crisis and upheaval, with the vaccination programme accelerating across Europe and lockdown restrictions beginning to ease, the prospect of an economic recovery feels within our grasp. At the same time, plenty of uncertainty remains,” said Chris Horne, the group CEO of Azets.

By Graeme Wearden

Source: The Guardian

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IMF predicts UK economy to grow fastest of all G7 nations

The UK economy is set to recover much faster than expected from the Covid crisis as a resurgence in consumer spending and the success of the vaccine rollout boosted official forecasts.

According to the International Monetary Fund’s latest World Economic Outlook report, the UK economy will expand seven per cent this year, a sharp increase from the 5.3 per cent predicted in the Fund’s previous report in April.

The seven per cent expansion is the joint highest rate of all advanced economies, tied with the US. However, the American economy suffered a 3.5 per cent contraction last year, meaning if the US reaches the IMF’s forecast, its economy will have recovered from the Covid hit.

Of all the group of G7 seven nations, the UK suffered the harshest hit from the Covid crisis, with economic output plummeting 9.8 per cent in 2020.

The IMF also expects growth next year to be slower than first thought, down 0.3 per cent to 4.8 per cent – still the second fastest among G7 nations.

The reopening of the services sector of the economy – which the UK relies heavily on – after the successful relatively earlier rollout of Covid vaccines compared to its peers has triggered a resurgence in economic activity in the UK, prompting the IMF to raise its forecasts.

Responding to the report, chancellor Rishi Sunak said: “There are positive signs that our economy is rebounding faster than initially expected, with the IMF forecasting the UK to have the joint highest growth rate in 2021 among the G7 economies.”

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“That said, we still face challenges ahead as a result of the impact of the pandemic, which is why we remain focused on protecting and creating as many jobs as possible through our Plan for Jobs.”

The enormous stimulus programmes launched by advanced economies to protect households’ income, jobs and prevent business bankruptcies is likely to push their combined debt-to-GDP ratio to 122.5 per cent by the end of this year.

The IMF expects Japan to have the slowest rate of output expansion of all advanced economies in 2021, rising 2.8 per cent, reflecting relatively longer lockdown periods in the country.

Europe’s largest economy, Germany, is forecast to have the second worst rate of growth at 3.6 per cent. Italy is third with a 4.9 per cent expansion.

China is expected to gain a greater share of the global economy.

Access to vaccines determines economic trajectory, warns IMF
The economic trajectory of each country has become more determined by their access to Covid vaccines, the IMF warned in the report.

Advanced economies have largely rolled out vaccines at a rapid rate, while a large proportion of emerging market and developing economies have struggled to secure enough vaccine supply to distribute among their populations.

These disparities in vaccine allocation has resulted in the global economic recovery “split[ting] into two blocs: those that can look forward to further normalisation of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising Covid death tolls” the IMF said.

Gita Gopinath, the IMF’s chief economist, said: “growth prospects for advanced economies this year have improved by 0.5 percentage points, but this is offset exactly by a downward revision for emerging market and developing economies driven by a significant downgrade for emerging Asia.”

The Fund called on countries that had procured excess doses – mostly rich economies – to donate vaccines to nations with low supply levels.

IMF urges central banks to keep monetary policy loose
The Fund urged central banks to maintain ultra-loose monetary policy in order to prevent a slowdown in the global economic recovery.

The Fund dismissed recent sharp price rises as purely “transitory” and said central banks should “avoid tightening until there is more clarity on underlying price dynamics.” However, it did say central banks should be “prepared to move quickly.”

“The current spikes in annual inflation in part are the result of mechanical
base effects from last year’s low commodity prices. Moreover, prices have increased
because of the likely transient supply-demand mismatches,” it said.

Latest data shows inflation in the UK is already running higher than the Bank of England’s target, up 2.5 per cent annually in June.

Criticism of central banks’ adherence to quantitative easing is intensifying, with members of a House Lords committee publishing a report last week accusing QE of widening wealth inequalities.

By Jack Barnett

Source: City AM

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UK economy growing at the fastest pace in eighty years – EY

Big Four accountancy firm, EY, has upgraded the country’s economic growth prospects, predicting the fastest rate of growth in 80 years as the UK emerges from the coronavirus pandemic.

The EY ITEM Club’s Summer Forecast predicts the UK economy to grow 7.6% this year, the fastest rate of economic growth since 1941, upgrading its forecast by 0.8 percentage points from Spring figures.

The UK economy is expected to now return to pre-pandemic level by the end of the year, three years earlier than appeared likely in forecasts made this time last year. Growth of 6.5% is now expected in 2022, an improvement from the 5% growth forecast in April. This will be followed by growth of 2.1% in 2023 and 1.6% in 2024.

The return to growth, according to EY, is being driven by consumer spending as the economy reopens, with confidence boosted by the UK’s rapid rollout of the Covid-19 vaccine. Delays to the government’s reopening of the economy were not judged to have impacted recovery, however.

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Compared to other economies, the UK is much more dependent on consumer spending on services, such as recreation and leisure activities, which meant that lockdowns had a greater economic impact here than elsewhere. Reopening these face-to-face parts of the economy means the UK should have a correspondingly faster recovery.

“Vaccines have played a key role in bringing forward the reopening of the economy and have been a key factor in the upgrades of the forecast throughout this year. We are also seeing some structural effects too: the UK’s way of measuring public sector spending means this will soon switch from being a drag on output to a positive, while the restrictions on international travel mean there should be much less of a tourism deficit than usual.

Martin Beck, the senior economic advisor to the EY ITEM Club

“While elements of the forecast remain uncertain, the UK has all the ingredients for a strong economic recovery from the pandemic. There is the possibility of a virtuous circle of positive expectations among businesses about rising consumer confidence and spending which, in turn, could boost firms’ confidence and output further. The fuel to sustain this circle – in the form of strong household and corporate balance sheets, and supportive fiscal and monetary policies – is there too.

“After almost 18 months of significant disruption, businesses have some space to plan ahead and invest in confidence. This could help businesses catch-up on the growth they’ve missed out on if they take the right steps to adjust to a return to a more familiar business environment.”

Stephen Church, EY’s North Markets Leader

The accountancy firm is also optimistic for employment figures, with unemployment predicted to peak at 5.1% in the second half of this year, according to EY’s analysis, and then beginning to fall in 2022. While above pre-pandemic levels, the rise in unemployment has been well below predictions made in 2020 at the height of the pandemic. The firm’s forecast attributes the furlough scheme and the way businesses have adapted to new trading conditions to the better than expected picture for jobs.

While EY’s forecast is optimistic for rapid growth as the consumer economy reopens in the UK, uncertainty remains over inflation and to what extent the British public will draw on savings built up during lockdown. Inflation is forecast to reach 3.5% by the end of 2021.

Martin Beck added:

While consumers have accumulated their largest stockpile of savings since the Second World War, the big question is whether they will actually start to spend these funds once restrictions on activity are lifted. The assumption is that they will, but this is not guaranteed. The picture for consumers is not entirely positive: savings are concentrated among higher-income households, while higher unemployment and inflation will weigh on real income growth. Household incomes are expected to rise 1% in real terms this year, which is well short of forecast GDP growth.

“The risks posed to the forecast by inflation can’t be overlooked either, particularly if prolonged higher-than-target inflation prompts the Bank of England to tighten monetary policy. However, while the departure of overseas workers from the UK during the pandemic might lead to some inflationary bottlenecks, there are factors, such as a stronger pound, which will help keep a lid on prices. Positively, the ingredients which were often a precursor to sustained higher inflation in the past do seem to be missing.”

Source: Marketing Stockport

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UK economy records modest May growth despite reopenings

The latest UK growth data covering May was a tad disappointing, with economic activity increasing by 0.8% on the month, a little lower than the 1.3/1.4% figure we’d been looking for. The good, albeit unsurprising, news is that consumer services activity rebounded strongly again owing to the ongoing reopening, and the likes of hospitality and recreation indices are essentially back to where they were last summer with comparable levels of restrictions. Otherwise the picture was slightly lacklustre, with the likes of retail, construction and manufacturing all recording month-on-month falls. In the case of the latter, you’d probably put this down to some of the supply chain issues being encountered globally.

Nevertheless, we still expect the UK to record approximately 5% growth through the second quarter. But the outlook for the current third quarter is becoming trickier to predict. Covid-19 cases are rising, albeit the growth rate may finally be showing some tentatively signs of slowing. And while the link with hospitalisations has weakened with the vaccines, there is growing concern about the number of people needing to self-isolate.

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Around 600,000 people were pinged by the NHS app or told to isolate by contact tracers in the week to 30th June, and that’s likely to be in the millions within days, if it isn’t already. This risks amplifying the worker shortages that we’re seeing in the consumer services sectors right now.

There’s also a growing risk that consumers begin to ‘act with their feet’ and reduce socialisation again while cases are high. And this may be one contributing factor to the recent levelling off in UK high frequency data. Mobility and spending data have come off recent highs.

We’d still expect positive third quarter growth of around 1.5%, especially given we’re not currently looking at new restrictions – and indeed the government is planning a further relaxation on 19 July. And we’d still say the outlook beyond the summer looks reasonably good, assuming no significantly vaccine-evasive variants emerge in the near-term.

We expect the size of the economy to be more-or-less back to pre-virus levels by the end of the year.

Source: Think Ing

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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 grew by 2.3 per cent in April as high street and hospitality reopened

UK economy grew by 2.3 per cent in April as government restrictions affecting economic activity continued to ease.

It was the fastest monthly growth of gross domestic product (GDP) since July last year and exceeded economists’ forecast of a 2.2 per cent jump.

In comparison with April 2020, monthly GDP in April 2021 is estimated to have grown by 27.6 per cent.

“Today’s GDP number confirms that the UK is witnessing a strong recovery,” said Emma Mogford, fund manager of Premier Miton.

“The release of pent up demand, as consumers return to shops and restaurants, is significant. Investment by businesses is also picking up, now that there is greater certainty over the outlook post-Covid and post-Brexit.”

Service sector shines

The service sector grew by 3.4 per cent during the month, with consumer-facing services reopening as Covid restrictions eased.

Output in the production sector fell by 1.3 per cent during April, the worst fall since January as three of the four sectors contracted.

Within production, mining output dropped sharply, by 15 per cent, because of planned temporary closures for maintenance of oil field production sites.

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Meanwhile, the construction sector contracted by two per cent following a strong March, with new work slowing down faster than repair and maintenance.

“Today’s figures show that although confidence is returning to the construction sector, this remains delicate and growth in specific work sectors is mixed,” said Clive Docwra, Managing Director of McBains.

“While overall output remains just above pre-pandemic levels, driven by an increase in repair and maintenance work, new work contracts declined which bucks recent growth trends.”

Sunak: ‘Promising sign’

April’s GDP remains 3.7 per cent below the pre-pandemic levels seen in February 2020, but is now 1.2 per cent above its initial recovery peak last October.

“Today’s figures are a promising sign that UK economy is beginning to recover,” finance minister Rishi Sunak said in a statement.

Last month, the Bank of England raised its forecast for British economic growth in 2021 to 7.25 per cent from February’s estimate of five per cent.

That would be the fastest annual growth since 1941 when Britain was recovering during World War Two.

“We’ve grown accustomed to erratic GDP figures since the pandemic, but today’s data confirms that the UK reached a turning point in April, when the re-opening of non-essential retail and easing of hospitality restrictions boosted spending,” said Jonathan Sparks, chief investment officer at HSBC.

“Consumer confidence has surged higher in recent months as the reopening continues, which bodes well for more domestically-focused companies.”

By Damian Shepherd

Source: City AM

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