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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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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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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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