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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 shrinks more than expected in first quarter

UK economy shrank by slightly more than expected in the first quarter before a subsequent easing of lockdown restrictions, revised official data showed on Wednesday.

Gross domestic product contracted by 1.6 percent in the three months to the end of March, down from the previous figure of 1.5 percent, the Office for National Statistics (ONS) said in a statement.

“Today’s updated GDP figures show the same picture as our earlier estimate with schools, hospitality and retail all hit by the re-imposition of the lockdown in January and February, with some recovery in March,” said ONS deputy national statistician Jonathan Athow.

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“With many services unavailable, households again saved at record levels.”

The UK government reimposed England’s lockdown in early January, but began lifting restrictions at the start of March with the reopening of schools.

Under a phased reopening, bars and restaurants restarted outdoor dining in April and indoor services in May.

Non-essential retail stores also opened back up in April.

The economy is expected to fully reopen on July 19, after the government delayed the date by four weeks due to surging Delta infections.

The ONS added on Wednesday that economic activity in the first quarter was 8.8 percent below its pre-pandemic level from late 2019.

“The small downward revision to Q1 GDP growth probably won’t stop the economy from rising back to its pre-pandemic peak in the coming months,” noted Capital Economics analyst Paul Dales.

“And the larger rebound in the household saving rate increases the potential for faster rises in GDP further ahead.”

Source: Bangkok Post

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UK economy contracted by 1.6% as people saved at record levels, figures show

UK economy suffered a bigger hit than first thought between January and March as the coronavirus lockdown took its toll and households saved at record levels, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) – a measure of the size of the economy – contracted by 1.6% in the first quarter, compared with the previous estimate of 1.5%.

This means GDP was 8.8% below its pre-pandemic levels at the start of the year, against the 8.7% initial estimate.

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The ONS said households slashed their spending and instead piled cash into savings, with the household saving ratio increasing to 19.9%, compared with 16.1% in the previous three months.

It is the second highest figure on record, beaten only by the 25.9% seen in the second quarter of 2020.

Jonathan Athow, deputy national statistician at the ONS, said: “Today’s updated GDP figures show the same picture as our earlier estimate, with schools, hospitality and retail all hit by the reimposition of the lockdown in January and February, with some recovery in March.

“With many services unavailable, households again saved at record levels with only last spring seeing more saved.”

Source: iTV

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UK banks’ profits slashed by more than half

Big UK banks’ profits have slid by more than half over the last year, according to a ranking of the world’s largest lenders published today.

UK lenders included in The Banker’s top 1,000 World Banks 2021 experienced a 53 per cent drop in profits.

Losses were attributed to the severe damage the pandemic has inflicted on the UK economy and Brexit uncertainty.

The ranking is based on Tier 1 capital, a key measure of banking strength.

Joy Macknight, editor of The Banker, said: “The UK banking industry has faced significant headwinds over the course of the past year, with the impacts of the Covid-19 pandemic and Brexit uncertainty weighing profitability down.”

HSBC sole European bank in top 10

HSBC is the only European bank to rank in the global top 10 list for the tenth successive year.

The top five ranking UK banks all saw pre-tax profits drop sharply over the last year.

HSBC lost 34.2 per cent, while Barclays’s pre-tax profits slid 28.72 per cent.

Lloyds Banking Group absorbed the harshest hit to pre-tax profits of the top five UK banks, down 71.72 per cent.

Standard Charter lost 56.56 per cent and NatWest Group shifted from profit to loss.

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HSBC was the only European lender to rank in the top 10

Global banking powerhouses shake off pandemic pressures
The rankings show the world’s largest banks have remained resilient in the face of the pandemic-induced economic decline.

The world’s largest lenders added 12.7 per cent to their collective Tier 1 capital, reaching $9.9trn, a record high.

Total assets rose 16 per cent, to $148.6trn, while deposits grew 17.1 per cent, to $93.9trn.

Macknight added: “Although profits have shrunk across the globe and many banks’ balance sheets are loaded with allowances for expected loan losses, the world’s banking industry has held up remarkably well and is better capitalised than ever before.”

The banking sector has also performed better during the pandemic compared to the financial crisis.

The top 1000 banks’ combined profits fell 19.2 per cent year-on-year, significantly lower than the 85.3 drop per cent in 2009.

European banks suffer from low rates

Poor economic growth and a record low interest rate environment put downward pressure on Western European banks’ profitability.

Of the largest European economies, banks’ aggregate pre-tax profits contracted 43.71 per cent in Germany, 75.72 per cent in Italy and 47.67 per cent in the Netherlands, while France fell 11.61 per cent.

Spain notched negative pre-tax profits, driven by two of its largest banks, Banco Santander and Bankia, moving from profit to loss.

China now holds almost double the volume of Tier 1 Capital ($2.96trn) as the US ($1.58trn), despite having fewer banks than the US in the rankings.

Profits grew 5.2 per cent in China, compared to a 31.5 per cent and 41.8 per cent drop in the US and Western Europe respectively.

By Jack Barnett

Source: City AM

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UK economy tipped to bounce back strongly after the pandemic

Economic growth is on course to return to pre-Covid levels by the end of the year, a leading business group is predicting.

But the CBI warned of a “two-speed recovery”, with sectors having different levels of recovery.

Its research among almost 600 firms suggested that in the three months to June, private sector activity grew at the fastest pace for six years.

Manufacturing and distribution activity grew at record rates while growth in business and professional services remained strong, but consumer services activity continued to fall, said the CBI.

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Alpesh Paleja, CBI lead economist, said: “With much of the economy having now reopened, we’re seeing a boost in activity across the economy.

“With robust expectations for the months ahead, and real positivity in terms of vaccine uptake, CBI forecasts show that UK GDP is on course to return to pre-Covid levels by the end of the year.

“Where we need to remain vigilant is the emergence of a two-speed recovery.”

The CBI added that sectors such as manufacturing, distribution and business and professional services looked well on the road to recovery, while firms in industries such as travel needed greater support to prevent the loss of skilled jobs.

By Daniel Smith

Source: Essex Live

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UK economic recovery continues but inflationary pressures build – PMI

The UK economic recovery continued in June, research published on Wednesday showed, prompting a record hike in employment, but inflationary pressures gathered pace.

The IHS Markit flash UK composite output index was 61.7 in June. That was down on May’s final reading of 62.9, and was marginally below consensus for 61.5. But it remains among the fastest rates of expansion seen since the series began in January 1998.

The services business activity index was 61.7, compared to 62.9 in May, while the manufacturing PMI printed at 64.2 against May’s 65.6. The manufacturing output index was 62.0, one point lower than May’s 63.0 reading.

IHS Markit said companies had responded to rising workloads by hiring extra staff “at an unprecedent rate”. The composite employment index hit a record high of 58.5 in June, up on May’s 57.4.

But it also noted input costs and output prices had reached fresh highs, as supply-chain disruptions weighed heavily.

Chris Williamson, chief business economist at IHS Markit, said: “Businesses are reporting an ongoing surge in demand in June as the economy reopens, led by the hospitality sector, meaning the second quarter looks to have seen economic growth rebound sharply from the first quarter’s decline.

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“There are some signs that the rate of expansion appears to have peaked, as both output and new order growth cooled slightly from May’s record performance, but full order books and a further loosening of virus-fighting restrictions should nevertheless help ensure growth remains strong as we head through the summer.”

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “As materials were increasingly hard to come by, they once again became more expensive. Record cost inflation last seen in 2008 filtered through to increasing output costs, as manufacturers were unable to absorb these rapid rises any longer.

“In service businesses, consumers were hit with considerably-higher prices for food and hospitality, increasing the threat of soaring inflation in the UK economy this summer.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The PMIs remain one of the most upbeat indicators of the pace of the economic recovery, insofar as they signal only a modest slowdown in month-to-month GDP group in June. Other surveys, however, point to a sharper deceleration.

“The further rise in the composite output price index, to 60.6 – the highest level in its 23-year history – confirms that price pressures are building quickly. Nonetheless, with labour market slack likely to increase in the fourth quarter, when the furlough schemes is wound down, and Covid-related costs to diminish as the country exits the pandemic, we continue to think that the MPC will look through the upcoming bout of above-target CPI inflation.”

Joshua Mahony, senior market analyst at IG, said: “While both manufacturing and services PMI readings weakened in the UK, there are many aspects to be encouraged by, with employment continuing to remain buoyant, and the 12-month outlook remaining optimistic.”

IHS Market surveyed its panel of 650 manufacturers and 650 service providers between 11 and 21 June. Final data will be published by 5 July.

By Abigail Townsend

Source: ShareCast

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UK Borrowing Falls More Than Expected as Economy Rebounds

UK government borrowing is running well below levels seen at the height of the coronavirus pandemic as the economy emerges from lockdown and people shift from benefits to work.

The budget deficit stood at 24.3 billion pounds ($33.8 billion) in May compared with 43.8 billion pounds in the same month of 2020, the Office for National Statistics said Tuesday. The shortfall was below the 25.5 billion pounds median forecast in a Bloomberg survey of economists.

The figure is also below the 28.5 billion pounds predicted by the Office for Budget Responsibility. That points to a potentially faster improvement in the public finances, thanks to surprisingly buoyant economic growth and a strengthening labor market.

“As we emerge from the pandemic, we are continuing to support people and businesses to get back on their feet,” Chancellor of the Exchequer Rishi Sunak said in a statement. “We are taking to keep debt under control in the years to come.”

The budget deficit ballooned to a peacetime high of 14.3% of GDP in the last fiscal year, largely reflecting the vast cost of supporting workers and businesses through the deepest recession in 300 years. The cumulative cost of wage subsidies alone reached 65 billion pounds in May.

In March, the OBR predicted that borrowing would fall to just over 10% in the current fiscal year. Since then, however, a rapid vaccination program has seen the outlook improve dramatically. On average, economists expect growth this year of around 7%, versus the 4% predicted by the fiscal watchdog.

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The hope is that growth will bring down the deficit without Sunak having to implement the hefty tax rises he has penciled in from 2023 to pay for the pandemic.

Tax revenue rose 15%, and spending fell 12% from a year ago. Debt stood at 99.2% of GDP.

The deficit in the first two months of the fiscal year was 53.4 billion pounds, with the ONS revising down borrowing in April by 2.6 billion pounds. The shortfall was 14.1 billion pounds lower than the OBR forecast.

“More than a third of that reflects differences in the timing of EU divorce bill payments,” the watchdog said in a commentary on the latest figures. “But lower spending and moderately stronger receipts growth mean that two months into 2021-22, the underlying outperformance of borrowing relative to forecast is 8.6 billion pounds.”

By Andrew Atkinson

Source: Bloomberg

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UK economy posts record annual jump in April, up 27.6%

Britain’s economic output in April was a record 27.6% larger than 12 months before, official data showed on Friday, an increase that reflects recent reopening and the scale of disruption to everyday life early in the COVID pandemic.

The figure matched the consensus of economists polled by Reuters.

In April alone, output rose by 2.3%, marking the fastest growth since July, the Office for National Statistics (ONS) said, and compared with the Reuters poll consensus for a 2.2% increase.

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But British economic output is still 3.7% lower than in February 2020, before the pandemic led to lockdown measures.

“Today’s figures are a promising sign that our 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% from February’s estimate of 5.0%.

That would be the fastest annual growth since 1941 when Britain was rearming during World War Two. But it comes after output plunged by almost 10%, the biggest drop in more than 300 years.

Source: CNBC

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UK economy accelerates as tourism and hospitality emerge from lockdown

The UK economy accelerated in May as tourism and recreation firms reopened, but the delay in ending Covid-19 restrictions is putting hospitality firms at risk, research shows.

Eleven out of 14 UK sectors reported faster growth in output month on month in May, up from nine in April, according to the Lloyds Bank UK Recovery Tracker, as the UK moved further out of lockdown.

The tracker found that the UK tourism and recreation sector recorded the sharpest rise in output growth as British hotels, pubs and restaurants benefited from pent-up consumer demand.

Firms took on more staff to handle rising demand. All 14 sectors reported jobs growth in May, led by manufacturing, while the tourism and recreation sector added jobs for the first time since January 2020.

Jeavon Lolay, the head of economics and market insight for commercial banking at Lloyds Bank, said sectors that had been acutely affected by coronavirus restrictions were now outpacing those that operated more freely during lockdown.

“Whether the four-week delay to further easing of restrictions will impact this trend is unclear. But while the delay is understandably disappointing for many businesses, there’s no denying that the economy is now on a much sounder footing,” Lolay said.

The survey also showed that companies across the economy raised their prices in May, led by chemicals and metals and mining producers.

“While UK inflation jumped higher than expected in May and stronger demand saw more businesses pass on rising costs to their customers, it’s arguably still too soon to worry about inflation spiralling out of control,” Lolay said.

The fast-food chain McDonald’s announced expansion plans on Sunday and will recruit 20,000 workers over the next 12 months as it opens 50 new restaurants in the UK and Ireland.

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But the Covid-19 restrictions are continuing to hurt the hospitality sector, particularly the night-time economy.

About 25,000 licensed premises were still shut at the end of May 2021, according to research from CGA and AlixPartners, which warned that thousands more clubs, restaurants, pubs and bars are at risk from the delay to ending lockdown.

CGA and AlixPartners found that more than three-quarters of Britain’s licensed sites were trading by the end of last month, up from about a third in April, thanks to the return of inside service.

However, while more than nine in 10 food pubs, high street pubs and casual dining restaurants are open, sectors that rely on late-night trading are still in jeopardy of failure, the report found.

“Many operators will have reopened in anticipation of restrictions falling away on 21 June, and likely forecast and accepted suppressed trade for the period up to that point,” said Graeme Smith, the managing director of AlixPartners.

“While far from ideal, knowing that ‘freedom day’ was on the horizon meant operators could battle through this challenging time, perhaps welcoming team members back to the business in anticipation and getting operations up to speed. A further delay of four weeks is a devastating blow, creating significant uncertainty and further financial strain.”

Michael Kill, the chief executive of the Night Time Industries Association, has urged the government to lift restrictions on 5 July – at the two-week review point set when the restrictions were extended. He said the industry was “on the verge of breaking”.

By Graeme Wearden

Source: The Guardian

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Reopening of UK economy to be delayed for four weeks

The full reopening of Britain’s economy has been postponed for at least four weeks due to the spread of the so-called Delta variant of Covid-19 first detected in India.

Prime Minister Boris Johnson made the announcement after the close of trading on Monday.

Restrictions on activity in pubs and nightlife venues or the rules on the use of facemasks had been due to be lifted on 21 June.

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Johnson nevertheless sounded a hopeful note, saying: “As things stand, and on the evidence that I can see right now. I’m confident that we will not need more than four weeks.”

He was speaking just after fresh figures from Public Health England revealed that the number of infections from the Delta variant had more than doubled over just the past week to 42,323.

By Alexander Bueso

Source: ShareCast

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