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UK economy back to growth ahead of predicted spending spree

The UK economy grew by 0.4% in February, new data from the Office for National Statistics (ONS) has revealed.

The return to growth followed a sharp drop of 2.2% in January recorded by the ONS, though it’s notable that it was still down by 7.8% from February 2020.

The ONS found that the service sector grew by 0.2% over the month, pointing to a “little” pick up in wholesale and retail trade sales, though this was far lower than the jump of 1.6% seen in the construction sector. This was driven by growth in both new work projects and repair and maintenance.

Meanwhile, output in the production sector increased by 1%, while manufacturing grew by 1.3% over the month.

Learning lessons
Howard Archer, chief economic advisor to the EY Item Club, argued that the figures show the economy is being affected less by lockdown measures than was originally the case, which suggested lessons had been learned and experience gained in how to keep activity going.

He added: “Companies and employees have got used to home working and, significantly, many workplaces, offices, sites and plants have been adjusted to meet Covid-19 social distancing requirements so that employees can continue to work on site.”

Archer said that with confidence on the rise, EY Item Club was revising its GDP forecast for 2021 to a much higher 5%, continuing: “The UK economy is expected to benefit progressively from the second quarter as restrictions on activity are eased, supported by the rapid roll-out of Covid-19 vaccines.”

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Time for a spending spree
Danni Hewson, financial analyst at AJ Bell, said that whole there was still lots of ground to make up, the images of packed pub gardens and lengthy queues on the nation’s highstreets suggested that many people were set to put restrictions behind them and embark on a spending spree.

She added: “There is also small comfort to be had in February’s trade figures. Exports to the EU which dropped so dramatically off a cliff in January have bungeed back up, though they are still £2bn down on pre-Brexit levels. Notably imports from the EU were less resilient and remain more than £5bn down. It’s clear there are still issues but many of those will have been exacerbated by lockdown restrictions, something which will undoubtedly continue further into the spring.”

Robert Alster, CIO at Close Brothers Asset Management, agreed that growth will be driven by spending and corporate investment, but argued the true state of the jobs market remains a big unknown.

He continued: “The furlough scheme will phase out from July to September, and it’s unclear whether businesses will re-hire all their workers. In a worst case scenario, a sustained rise in unemployment could undermine a strong UK recovery.”

Written by: John Fitzsimons

Source: Your Money

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UK economy will be back to its pre-COVID-19 level around the middle of next year

UK economy will be back to its pre-COVID-19 level around the middle of next year, according to economists in a Reuters poll who said unemployment would peak at 6.2% as 2021 draws to a close and the pandemic job support scheme ends.

The UK has suffered the highest coronavirus-related death toll in Europe. But a swift vaccine rollout and plummeting infections has allowed the government to begin easing restrictions and on Monday non-essential retail and outside hospitality reopened.

Last year the economy shrank by the most in more than three centuries, but the April 7-12 poll of around 70 economists said it would expand 5.0% this year and 5.5% in 2022. In a March poll those forecasts were 4.6% and 5.7%, respectively.

With much of the country’s dominant service industry closed, and citizens encouraged to stay at home, the poll suggested the economy contracted 2.3% last quarter. Now that lockdowns are being loosened, it was expected to grow 3.5% this quarter and 3.0% next.

“There are mounting signs that the effects on the UK economy from the third COVID-19 lockdown have started to thaw,” said Paul Dales at Capital Economics.

“We are sticking to our relatively optimistic view that the reopening of the economy and the vaccine programme will allow GDP to regain its pre-pandemic level early next year.”

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But asked when the British economy would be back to its pre-pandemic size the majority of respondents to an additional question thought it would take a bit longer, with 10 expecting it to be a quarter or two later.

Finance Minister Rishi Sunak said last month he expected the UK economy would return to its pre-pandemic size in mid-2022. Six respondents in the poll said it would take longer and five said it would be sooner.

FINAL FURLONG

Britain’s job market has been protected by a huge government furlough scheme which is due to run until end-September, keeping unemployment levels relatively low. It was 5.0% in the three months to January.

The median response to a question asking where it would peak was 6.2%, most likely towards the end of this year when the furlough scheme finishes.

“Some rise in unemployment is probable once furlough ends. But the evidence from around the world is that labour markets can recover quickly and if scarring is contained, jobs growth can recover through 2022,” said Brian Martin at ANZ.

Like many of its global counterparts, during the height of the pandemic the Bank of England slashed borrowing costs to a record low and restarted its asset purchase programme to try and support the economy.

None of the 60 economists polled expected Bank Rate to move from 0.1% when the Monetary Policy Committee meets on May 6 and medians in the survey suggest it won’t increase until 2023. The earliest anyone had a hike pencilled in was for Q3 next year.

Inflation has held well below the Bank’s 2.0% target, allowing it to remain accommodative with policy.

The poll showed inflation would not reach that goal until towards the end of this year although an overwhelming majority of respondents to an additional question, 15 of 17, said the risks to their forecasts were skewed more to the upside.

“Higher inflationary pressures are still evident – with shipping costs, input costs indices and commodity prices still up,” said James Pomeroy at HSBC.

Reporting by Jonathan Cable

Source: UK Reuters

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UK economy improved in February despite lockdown measures

The UK economy rebounded slightly in February amid the third lockdown but was still almost 8% lower than before the pandemic, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4%, representing an improvement from a 2.2% decline in January, which itself had been revised upwards from a previously predicted 2.9% fall.

Nevertheless, the February reading was slightly below the forecasts of some analysts, with experts at Investec predicting a 0.7% improvement for the month.

The construction sector saw activity jump by 1.6% for the month amid a lift in new work and maintenance.

Production and manufacturing activity also improved, with the two sectors revealing 1% and 1.3% improvements respectively.

Meanwhile, the service sector remained particularly constrained, reporting just 0.2% growth, as hospitality and retail remained constrained by pandemic restrictions.

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The figures also revealed that exports to the EU increased by £3.7 billion – or 46.6% – following a record slump of £5.7 billion in January.

The ONS said the export increases were driven by machinery, transport equipment and chemicals.

It added that the import of goods from the EU also rebounded, increasing by £1.2 billion – or 7.3% – in February.

An ONS spokeswoman said: “The economy showed some improvement in February after the large falls seen at the start of the year but remains around 8% below its pre-pandemic level.

“Wholesalers and retailers both saw sales pick up a little, while manufacturing improved with car producers experiencing a partial recovery from a poor January.

“Construction grew strongly after revised figures showed they had struggled in the last couple of months.

“Exports to the EU recovered significantly from their January fall, though still remain below 2020 levels.

“However, imports from the EU are yet to significantly rebound, with a number of issues hampering trade.”

Suren Thiru, head of economics at the British Chamber of Commerce, said: “The latest data confirms a modest return to growth in February.

“However, coming after a contraction in January, it does little to alter the prospect of a downbeat first quarter for the UK economy.

“The pick-up in output in February reflected a broad-based improvement in activity with all the main sectors recording an increase in growth.

“The clarity provided by February’s announcement of a road map for reopening also helped support output in the month.”

Source: Irvine Times

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Pound Sterling Heads for Biggest Weekly Drop against the Euro

The British Pound is on course to record its sharpest weekly decline against the Euro since September 2020, a time when the EU and UK faced a logjam in Brexit trade negotiations that lead markets to raise bets a ‘no deal’ outcome was increasingly likely.

The fall in Sterling in April 2021 however has no clear narrative behind it, although some analysts are pointing a tentative finger at the hiccup in the UK’s vaccination rollout stemming from the UK medical regulator’s decision to restrict the distribution of the country’s ‘workhorse’ AstraZeneca vaccine.

The Pound-to-Euro exchange rate declined by a third of a percent on Thursday to record a five-week low at 1.1540, having been as high as 1.1800 at the start of the week.

The weekly decline is now 1.80% at the time of writing.

Marshall Gittler at BDSwiss says blaming the regulator’s change of guidance on the AstraZeneca vaccine is unconvincing given that the most of the Eurozone’s largest countries have applied similar, if not more restrictive, conditions on the same vaccine.

If anything, news out of the UK on the vaccination front remains positive with official data showing the number of vaccinations delivered on Wednesday exceeded 500K once more, suggesting an Easter drop off is now in the rear-view mirror.

The prospects of the UK exiting restrictive lockdown conditions meanwhile looks all the more certain based on modelling from University College London (UCL), that shows Britain will pass the threshold for herd immunity on Monday 11 April.

If the modelling is correct a resurgence of covid-19 infections and hospitalisations is incredibly remote and businesses and consumers alike can continue investing in a post-covid future, thereby driving a strong economic rebound.

“I think one of the main reasons GBP is falling could be just positioning and trend-following,” says Gittler, “I’m skeptical about this setback”.

“The GBP correction is symptomatic of a market that had become overly positioned at bad levels after a long trend move, positioning finally peaked as many cited the past strong April seasonals… GBP will ultimately regain its poise and drift higher,” says Jonathan Pierce, a trader at Credit Suisse.

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While the Pound went lower by a third of a percent against the Euro on Thursday it is notable that the currency was steady against the Dollar, this was reflected in an Euro-to-Dollar exchange rate that was a third of a percent higher at 1.19.

This suggests the most recent decline in GBP/EUR is more a function of Euro strength than a reboot of the mid-week Sterling weakness.

The rally in the Euro exchange rate complex comes as the EU sees a sharp increase in vaccination rates suggesting the area’s woes concerning vaccinations is coming to an end.

Numerous EU countries, including Germany, recorded a fresh daily record on Wednesday, signalling to markets that a strong vaccine-induced rebound lies ahead.

Pound sterling was a beneficiary through January, February and March of the UK’s rapid vaccine rollout, which contrasted most strikingly with a tepid rollout in the EU.

Signs that this differential with Europe is now closing is therefore offering the Euro fresh support at Sterling’s expense.

We reported on Thursday that research from Citi and Goldman Sachs shows that the Euro stands to benefit as the EU vaccination accelerates in April, allowing foreign exchange markets to focus on a strong Eurozone recovery in the second half of the year.

“We think markets priced much negative Covid news, says Ebrahim Rahbari, Chief G10 Currency Strategist at Citi.

Analysts at NatWest Markets tell clients the second quarter should see significantly higher vaccine supplies from existing producers which include AstraZeneca, Moderna and Pfizer who should together deliver almost three times the amount of doses in the second quarter compared to the first quarter.

This is even after accounting for lower than planned AstraZeneca supply in the second quarter.

“Added to this, Johnson & Johnson vaccinations should begin, with supply reportedly being delivered to European countries from mid-April – this adds an additional 55 million doses to the Q2 total,” says Imogen Bachra, European Rates Strategist at NatWest Markets.

The European Commission now looks on target to vaccinate a minimum 70% of the entire adult population by the end of the summer.

“If we look at the Euro area more broadly, the health situation looks better than the public debate might suggest. Despite the further twists and turns in the AstraZeneca saga, the overall pace of vaccinations is finally starting to surge,” says economist Jan Hatzius at Goldman Sachs.

EU countries are nevertheless grappling with a third wave of covid-19 infections that has prompted the extension of lockdowns in Italy, a fresh lockdown in France and calls by Germany’s Chancellor Angela Merkel for Germany to do the same.

But Goldman Sachs tell clients the virus numbers themselves are not as bad as widely believed, with both positivity rates and fatalities fairly stable despite selective reopening and generally stronger-than-expected economic data.

“Our FX strategists think the end of the recent Euro selloff is near and see a significant appreciation over the next year,” he adds.

Goldman Sachs say it is easy to imagine Europe outperforming their baseline forecasts if Germany and other manufacturing-dependent economies continue to benefit from a strong global industrial rebound, while an earlier-than-expected vaccination breakthrough rescues the Southern European tourist season.

Source: PSL

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UK economy ended 2020 better than previously expected

The pandemic-hit UK economy grew quicker than earlier expected in the final three months of 2020, but still shrank by the most in more than three centuries that year, according to official data, which revealed the biggest pile of household savings on record last year. The Bank of England thinks this will fuel a recovery when consumers are freed from lockdown.

Gross domestic product (GDP) increased by 1.3 per cent between October and December from the previous three-month period, UK media reported citing the Office for National Statistics (ONS).

In 2020, GDP fell by 9.8 per cent from 2019, only slightly less sharp than an initial estimate of a 9.9 per cent slump.

The UK economy suffered the biggest drop of all countries in the Organisation for Economic Cooperation and Development (OECD) except for Argentina and Spain last year, OECD data has shown.

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It remained 7.3 per cent smaller than before the pandemic, in inflation-adjusted terms, the second biggest drop among eight major economies listed by the ONS.

Although this partly reflects the way different countries produce the data, some of the weakness shown by Britain’s economy, particularly in household spending, was real.

After a rollercoaster 2020, when GDP careened 19.5 per cent lower in the second quarter, during the first lockdown, and grew by almost 17 per cent in the third, the Bank of England expects growth of 5 per cent in 2021 as a whole, helped by Europe’s fastest vaccination programme.

The savings ratio rose to 16.1 per cent from 14.3 per cent in the third quarter and for 2020 as a whole it hit a record high of 16.3 per cent, compared with 6.8 per cent in 2019, the ONS said.

Source: Fibre2Fashion

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Redundancies Amongst the Over 50s Nearly Tripled in a Year

Redundancies amongst the over 50s have increased by 195% in a year, with the level and rate both higher than any other age group, according to new analysis of official ONS statistics from Rest Less, the digital community for the over 50s.

Rest Less’s analysis of the latest data produced by the Office of National Statistics shows that nationally, redundancies hit a pandemic peak of 395,000 in September to November 2020. Whilst redundancy levels have fallen nationally by 22% since the peak, they are falling more slowly amongst older workers.

Stuart Lewis, Founder of Rest Less, commented on the analysis: “While there are plenty of reasons to be optimistic about the economy starting to open up, it’s clear that businesses are far from out of the woods yet, with many still struggling to survive and the level of redundancies remaining historically high.

‘Whilst the extra extension to the furlough scheme has stemmed the flow of redundancies for now, redundancy rates amongst the over 50s remain stubbornly high and are the highest of all age groups.

‘With an estimated 1.3 million workers over the age of 50 still on furlough, there is a very real danger of a tsunami of redundancies amongst workers in their 50s and 60s when struggling employers are required to increase their contribution to the furlough scheme from July.

‘This is of concern to all of us, as previous research has shown that once unemployed, workers over the age of 50 are two and a half times more likely to drift into long term unemployment than their younger counterparts due to a mix of age discrimination in the recruitment process and a lack of accessibility to tailored retraining programmes.

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‘With the state pension now standing at 66 for both men and women, without more tailored Government support – similar to the scale and breadth of initiatives being put in place for younger workers – large-scale, long-term unemployment of this talented section of the population risks removing the engine room of growth for the entire UK economy.”

Kim Chaplain, Associate Director – Work, from the from the Centre for Ageing Better, commented: “These figures show just how devastating the impact of the pandemic has been on over-50s, with over 100,000 made redundant between November and January alone.

“This is particularly worrying because we know that over 50s, are likely to struggle more than any other group to get back into work – so we risk seeing many of these people leaving the workforce for good.

“In the months ahead, it’s vital that we build back a multigenerational workforce. Our economy needs both the direct contribution of experienced older workers and the support they provide to other, less experienced groups.

“We need to see targeted employment support to help over-50s back to work, and a strong message from government that not only is this group just as entitled to work as younger workers, they also provide a valuable contribution we cannot afford to lose.”

By Nigel Barlow

Source: About Manchester

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UK economy set for a significant boost, new figures show

The UK economy is set for a significant boost as UK mid-sized businesses emerge from a winter of lockdowns and restrictions with plans to invest and recruit, according to new figures published today.

According to the data from accountancy and advisory firm, BDO, medium-sized businesses are set to spearhead the UK’s economic recovery with three quarters (75%) of mid-tier businesses stating that 2021 is the time to invest, and over a quarter (26%) already planning to invest in new locations or M&A.

BDO surveyed leaders from 500 medium-sized businesses across the UK to uncover their plans for the year as the UK progresses with its rapid vaccine rollout programme.

Hinting at some early signs of recovery, 86% of UK mid-tier businesses are looking to recruit more staff over the next six months, with over half (54%) planning permanent appointments. Almost three quarters of businesses based in Yorkshire and the Humber, as well as Central South (73%), will add permanent staff to their ranks.

The Government’s £3,000 apprenticeship grant also provided a boost, with over a third (36%) of businesses stating they would now hire apprentices as a direct result of this incentive. This came as part of a larger 70% of businesses planning to recruit in this area regardless of the incentive.

News of investment in apprenticeships will be welcomed by many, with recent data from the ONS revealing that those under the age of 25 account for more than two thirds of job losses since the start of the pandemic.

Businesses believe they are well supported by the Government for the year ahead. 73% agreed the Chancellor promised enough to support the regional “levelling up” agenda in his March budget, while 59% believe that their region will be given enough financial support over the next 12 months as a direct result of the pandemic.

Investment plans also received a boost in the March budget. Nearly half of businesses (47%) are planning new investments following the “super deduction” initiative, which allows companies to cut their tax bill by up to 25p for every £1 they invest.

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There is cause for further optimism as three quarters of businesses (75%) expect revenues to return to pre-pandemic levels within a year of the strictest restrictions being lifted.

That said, few businesses have come away from the crisis unscathed. Over a third (38%) of businesses stated that their business model or product line will change in light of the pandemic. Another third (33%) expect pricing of products and services to increase, likely reflecting a need to pay back debt or recover higher costs.

Reflecting on the findings Ed Dwan, Partner at BDO, commented: “Mid-sized businesses are the engine of the economy; they have often proven robust even during the most uncertain economic conditions. The resilience they have demonstrated over the past year will mean they are well-placed to benefit from the vaccine roll-out and gradual lifting of restrictions. Ultimately these businesses will drive the UK’s economic recovery forward.

“However, the strength of the mid-market economy can’t be taken for granted. The results show that Government support has been vital for this segment of the UK economy so far, but areas such as access to finance and support on supply chain disruption will be crucial in creating an environment that allows these businesses to thrive.”

Mid-sized, PE owned and AIM listed businesses, what BDO calls the economic engine, account for less than 1% of businesses overall but contribute £1.4tn in revenues and provide one in four jobs. In the five years leading up to the start of the pandemic, these businesses grew revenues by 46% despite Brexit-related uncertainty.

The role of the economic engine in the UK’s wider economic recovery should not be overlooked. In 2015, the CBI estimated that the growth of just 3,000 mid-sized firms from 2010 to 2013 was enough to drag the country out of recession and into growth after the financial crash. If more firms had rebounded quickly and hit pre-recession growth rates, then it could have added tens of billions of pounds to the UK economy.

By: Barney Cotton

Source: Business Leader

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2020 worst year on record for UK economy

The UK economy suffered a steeper contraction during the first coronavirus lockdown but bounced back more strongly than previously thought at the end of 2020, according to official figures.

The Office for National Statistics (ONS) said gross domestic product (GDP) – a measure of the size of the economy – shrank by even more than first forecast between April and June last year – plummeting by 19.5% against the 19% initial estimate.

However, in a raft of revisions to previous figures, the ONS said the UK economy rebounded by 16.9% and 1.3% in the third and fourth quarters of 2020 respectively.

This marked steep increases on the 16.1% and 1% previous estimates.

The widespread revisions left GDP plummeting by 9.8% overall in 2020, against the 9.9% first pencilled in, but still the worst annual performance for more than 300 years.

Jonathan Athow, deputy national statistician at the ONS, said: “Our revised quarterly figures show the economy shrank a little more than previously estimated in the initial stages of the pandemic, before recovering slightly more strongly in the second half of last year.

“However, these new estimates paint the same overall picture as before, with historically large falls in GDP in the spring, followed by a recovery in the summer and autumn.”

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Due to the upward revision to figures for the final three months of 2020, the level of GDP was 7.3% below that of a year earlier, against a previous estimate of 7.8%, according to the ONS.

The 9.8% annual drop marks the steepest since official records began, while historical figures from the Bank of England suggest it is the biggest contraction since the Great Frost of 1709.

But the ONS stressed that its GDP estimates are “subject to more uncertainty than usual” and likely to have larger-than-normal revisions due to the challenges of collecting data in the pandemic.

The UK economy suffered among the largest contractions of all the countries in the Organisation for Economic Co-operation and Development (OECD), with only Spain and Argentina seeing steeper falls.

Recent monthly figures from the ONS also show that the third English lockdown sent GDP plunging 2.9% in January, though this was better than feared by experts.

Howard Archer, chief economic adviser to the EY Item Club, said he is now pencilling in a hit of just over 1% overall in the first quarter of 2021, compared with 3.4% previously forecast as the economy proves more resilient to lockdown disruption.

He added that data in the latest ONS release showing a rise in the household savings ratio to 16.1% between October and December and a record 16.3% over 2020 “suggests consumers overall are in a good position to spend as restrictions ease through the second quarter”.

In separate figures also released on Wednesday, the ONS said the UK current account deficit – the difference between the value of the goods and services the UK imports and the goods and services it exports – widened to £26.3 billion in the fourth quarter of 2020.

This is equivalent to 4.8% of Britain’s GDP and is almost twice the level seen in the previous three months as firms stockpiled imports ahead of the December 31 Brexit deadline.

Source: Irvine Times

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Covid-19, a year on: the need for a more diverse UK economy

The UK economy was hit by a 10 per cent drop in GDP last year, the largest contraction of any G7 country. This is despite the fact that the health effects of Covid were broadly comparable across most other advanced economies, with the UK spending a similar amount of time in lockdown as Germany, France and Spain.

The damage has been disproportionately catastophic for London. Office for National Statistics figures show the capital’s unemployment stands at 6.9 per cent compared to the UK rate of 5.1 per cent.

The chancellor likes to point out that the UK measures GDP differently from other nations and so our headline figure for 2020 was lower than in reality. However, the UK’s economic contraction was still “significantly bigger than Germany’s” and among the lowest in the G7 even when taking these differences into account, according to Capital Economics.

One explanation for the poor performance is our economy’s over-reliance on services. Services – such as financial, legal, education, tourism, hospitality retail and real estate for example – make up 80 per cent of the UK’s GDP, while 14 per cent is construction and just 6 per cent is manufacturing. Shutting down the economy and locking people indoors for most of a year will naturally put a halt to much of the service industry, however there are still lessons to be learnt about the ability of the UK’s ability to handle future shocks. Covid-19 should be a serious wake up call to policymakers that they need to fundamentally alter the make-up of the economy.

As it stands, the UK is far too reliant on a model that sees its workforce act as service providers. Put simply – the UK needs to make things again. This doesn’t mean overturning the changes of the 1980s and trying to restart a swathe of industries that have long disappeared. Nor does it necessarily mean completely gutting or ignoring the financial services industry (this is City A.M. after all).

Instead, the UK needs to build up manufacturing and product development in sectors like green energy, tech, science and pharmaceuticals to ensure the economy can better weather future economic storms. Just as the sensible investor diversifies their portfolio to hedge for inherent market risk, so too should the UK diversify its economy for when the country is hit by future recessions or financial crises. This is particularly salient in the wake of Boris Johnson’s UK-EU trade deal, which included no provisions for services.

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Johnson’s levelling up agenda, and investment in skills training, shows he already understood the need for a larger manufacturing base, but this now needs to be turbocharged. The typical conservative levers to pull would be in the form of tax credits and deductions, much like Rishi Sunak’s recently announced super deduction that aims to stoke private sector investment. However, the government will need to go much further than this.

Theresa May earlier this month told the House of Commons that the only way to drive innovation and growth was through research and development funding.

“If we want an innovation economy what we need to do is to invest and support investment in areas which encourage growth and innovation – that means R and D,” she said.

What better time for a large increase in government R and D funding into green technologies as the UK gets ready to host the 2021 United Nations Climate Change Conference (Cop26)? There is a serious opportunity for this government to make the UK a global leader in renewable energy manufacturing and production, which would future-proof the economy for decades to come.

A readymade example for how increased R and D spending could benefit the UK and create new industries can be seen across the pond, according to Canadian policy wonk Marshall Auerback.

Auerback, a fellow at the Levy Institute think tank, told City A.M.: “The government should take an active role in terms of funding basic research and development…and the private sector can determine the most profitable venues for that R and D development.

“For instance, the foundation of Silicon Valley was largely built on the R and D provided through by US government through the Department of Defence and the National Institute for Health and Science.”

The dual disruptions of Covid-19 and Brexit provide the perfect opportunity for the UK to reset course and forge a dynamic economy for generations to come. Free of EU state aid rules and in a time of mass disruption to the way people work, the UK must embark on growing its economy by increasing its manufacturing base. Let’s hope Johnson takes the advice of former Barack Obama chief of staff Rahm Emanuel and does not let a serious crisis to go to waste.

By Stefan Boscia

Source: City AM

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Economy Surges Back And Employment Increases First Time In Months

The UK economy is springing back to life and creating more jobs for the first time since February, according to PMI data for March.

The Manufacturing PMI for March read at 57.9, which is above the 55.0 forecast and 55.1 reported in February. The Services PMI – which covers the largest component of the UK economy – read at 56.8, above the consensus expectation for 51.0 and February’s reading of 49.5.

Taking the two together and rebalancing the data to give a better snapshot of the broader economy gives us the Composite PMI which read at 56.6, which is well above 51.1 expected and the 49.6 reported in February.

The IHS/Markit PMI survey is a much-watched indicator of changes and trends in economic activity that offers the most comprehensive timely data to economists.

A reading below 50 represents contraction, a reading above represents expansion.

“The better-than-expected UK PMIs come as firms begin preparations for economic reopening in April and May. This bounceback in activity is likely to drive 4-5% growth in the second quarter,” says James Smith, Developed Markets Economist at ING Bank.

The inference is therefore that the economy is rebounding, and is doing so at a pace that is faster than economists and the market expected.

IHS Markit says the rebound in activity was the fastest recorded in seven months, fuelled by a rise in new orders for the first time since September 2020.

Survey respondents attributed to a rebound in sales ahead of easing lockdown measures, alongside stronger consumer confidence and a surge in demand for residential property services.

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For the first time since the start of the pandemic, service sector activity (index at 56.8) outpaced manufacturing production growth (55.6).

The survey reveals the government’s roadmap for fewer stringency measures in the coming months contributed to the strongest rise in total new work since August 2020.

Service providers noted forward bookings from domestic consumers, while some manufacturers cited advanced orders from hospitality businesses and high-street retailers.

However, exports remain a sore spot for the UK Economy as the survey reveals export sales remained relatively subdued with total new orders from abroad falling for the third month running.

Efforts to rebuild business capacity and respond to rising customer demand contributed to an increase in private sector employment during March.

This finding chimes with official ONS employment data out on Tuesday that showed the UK’s unemployment rate actually fell to 5.0% in January, leading some economists to suggest the peak in unemployment might already be in.

The PMI report shows the uptick in employment in March represented the first upturn in staffing numbers since February 2020 and the rate of job creation was the fastest for nearly two years.

“The encouraging readings on future expectations, job creation and new order inflows meanwhile all point to robust economic growth in the second quarter, especially if virus restrictions are lifted further,” says Chris Williamson, Chief Business Economist at IHS Markit.

The survey reveals that inflation could rise over coming weeks and months as positive trends for output, new work and staff hiring were accompanied by another round of steep input cost inflation during March.

The latest increase in average cost burdens was the sharpest since February 2017. Private sector companies continued to pass on greater operating expenses to clients, as signalled by an acceleration in the rate of output charge inflation to its highest for over three years in March.

The findings come on the same day the ONS reveals UK inflation was softer than economists were expecting in February, however economists are in agreement that all signs point to higher rates of price increases in the future.

Meanwhile, IHS Markit report expectations of rising sales after the national lockdown, and a boost to sentiment from the successful UK vaccine rollout, contributed to an increase in business optimism to its highest since January 2004.

“Dormant businesses were able to plan again with the imminent lifting of UK restrictions and consumers were securing their place in restaurants and holiday venues. Though international travel is still restricted, as long as the fastest rise in consumer costs for three years and the threat of new lockdowns doesn’t halt further progress, we can see more opportunities opening up in the coming months,” says Duncan Brock, Group Director at CIPS, who sponsor the PMI report.

ING’s Smith says these latest numbers probably don’t help us too much in pinning down GDP growth figures for the next couple of months as they tell us more firms are seeing improving conditions, but don’t necessarily indicate by ‘how much’.

“Nevertheless, it’s encouraging and is a reminder that sharply higher growth numbers are on their way,” says Smith.

Written by Gary Howes

Source: Pound Sterling Live

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