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UK recovery perks up despite consumer gloom and inflation surge

UK economy unexpectedly regained momentum in October, despite surging costs and mixed consumer signals, according to surveys on Friday that could tempt the Bank of England to raise interest rates for the first time since the pandemic.

The preliminary “flash” IHS Markit/CIPS Composite Purchasing Managers’ Index rose by the largest amount since May to hit 56.8, up from 54.9 in September. By contrast, a Reuters poll of economists had pointed to a further slowdown to 54.0.

Sterling rose to the day’s high so far against the dollar after the data, which contrasted with earlier figures showing a record fifth straight monthly fall in retail sales in September, despite panic-buying of petrol late in the month.

However, IHS Markit’s chief business economist, Chris Williamson, said the unexpected rebound in the PMI should not be viewed as a green light for the BoE to raise rates on Nov. 4.

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“The service sector is clearly in something of a sweet spot,” he said. “Rising COVID-19 case numbers pose a downside risk to growth in the coming months, potentially deterring some services-oriented activity … and potentially leading to the renewed enforcement of health restrictions as winter draws in.”

Market researchers GfK said households this month were the gloomiest since the last lockdown in February, due to higher prices, shortages in shops and petrol stations and a big increase in the number of coronavirus cases.

Britain reported more than 52,000 new COVID-19 cases on Thursday alone, the highest since a wave of the Delta variant in July and more than anywhere else in Europe.

SERVICES STEP UP

IHS Markit said the rise in the PMI was driven by Britain’s services firms as consumers and businesses spent more due to the rollback of pandemic restrictions. Travel firms in particular benefited from a relaxation of COVID-19 testing rules.

By contrast, retailers – who are not covered in Britain’s PMI – have seen sales fall non-stop since a record high in April as supply-chain difficulties worsened and spending options widened as pubs, restaurants and hotels reopened.

Service sector activity outpaced manufacturing output by the widest margin since 2009 as factories struggled again with shortages of supplies and staff and recorded barely any growth.

The PMI for the services sector rose to 58.0, its highest in three months, while the manufacturing PMI’s output component sank to its lowest since February at 50.6.

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Higher wages and the worsening supply shortages resulted in the fastest increase in average costs since the combined composite index was launched in January 1998. Separate PMIs for the services and manufacturing sectors showed prices charged by firms rose by the most since these individual series began more than 25 years ago.

With inflation set to hit more than double its 2% target soon, the BoE is expected to raise borrowing costs soon as it tries to make sure that rising inflation expectations do not become embedded in British businesses’ pricing decisions.

The Bank of England’s new chief economist, Huw Pill, said in an interview published late on Thursday that the question of raising interest rates was “live” for the central bank’s November meeting, and that he would not be surprised to see inflation exceed 5% early next year.

The Confederation of British Industry said on Thursday that manufacturers were raising prices by the most since 1980 in the face of some of the biggest increases in costs and labour shortages since the 1970s.

September’s retail sales data showed the biggest increase in prices since December 2011, and GfK said a record proportion of the public expected inflation to accelerate over the next 12 months.

But many economists think the BoE would still do better to wait until Britain’s economy has returned to its pre-pandemic size before raising rates, especially as finance minister Rishi Sunak is expected to set out tighter budget rules next week.

“The risk is that by tightening monetary policy too quickly, some of the temporary economic damage from the pandemic becomes permanent,” said Thomas Pugh, an economist at accountants RSM UK.

By William Schomberg and David Milliken

Source: Reuters

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Bank of England official warns inflation could top 5% as UK economy slows

Inflation could surge above 5% early next year in the United Kingdom, according to the Bank of England’s top economist, as product and labor shortages continue to hamper the country’s economic recovery.

“I would not be shocked — let’s put it that way — if we see an inflation print close to or above 5% [in the months ahead],” Huw Pill told the Financial Times. “And that’s a very uncomfortable place for a central bank with an inflation target of 2% to be.”

Pill declined to reveal how he would vote at the Bank of England’s next meeting on November 4, but he said that the question of whether policymakers should hike interest rates from 0.1% is “live.” Central banks use interest rates to keep inflation low and stable.

Inflation has been running near 3% in the United Kingdom as the country’s economy bounces back from a steep contraction in 2020 caused by the coronavirus pandemic. But there are signs the recovery is faltering, even as inflation remains stubbornly high.

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The latest worrying signal came Friday, when the Office for National Statistics said that retail sales volumes fell for a fifth consecutive month in September. That’s the longest streak of consecutive declines since records began in 1996. Non-retail spending was also weak.
Economists worry that the United Kingdom may be entering a period of “stagflation” characterized by weak economic growth and rising prices.

“The whiff of stagflation is greater in the UK than in most other economies and we now think temporary shortages will restrain GDP for longer and boost inflation by more than we previously thought,” Capital Economics analysts wrote this week.
“This won’t be anywhere near as severe or as persistent as in the 1970s,” the analysts said.
“But for the next six months, the worsening product and labor shortages will put the brakes on the economic recovery at the same time as higher energy prices drive up CPI inflation from 3.2% in August to a peak of around 5.0% in April next year,” they added.

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The United Kingdom is facing severe labor shortages, including a shortfall of 100,000 truck drivers, and workers are demanding higher wages, contributing to inflation. Energy prices have risen sharply across Europe, and some businesses are passing along higher costs to consumers.
British consumer goods giant Unilever (UL) — which sells products around the world — said Thursday that it hiked prices by 4.1% in the quarter to September.
Governor Andrew Bailey said last weekend that the Bank of England would “have to act” in response to surging prices. He said he continues to “believe that higher inflation will be temporary,” but conceded it could last longer than previously thought as a result of energy price hikes.

By Walé Azeez

Source: CNN Business

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Interest rates: why they could rise even while the UK economy remains in the recovery position

The pandemic has been a bruising experience for the global economy. In response, many countries have kept interest rates low, to keep money moving at a time of extreme uncertainty. In the UK, rates have been at an all time low of 0.1% since March 2020. But this may be about to change.

Andrew Bailey, the governor of the Bank of England, has hinted at an interest rate rise. This would lead to a rise in the cost of borrowing. More expensive borrowing generally means lower levels of disposable income, followed by lower levels of household spending. The lower demand for goods then lowers prices, which leads to a decrease in inflation.

The Bank of England is signalling that curbing inflation may be necessary, given that the annual rate currently stands at 3.1%. Rising prices, without a match in wage increases, adversely affects incomes, reducing the purchasing power of households (especially the poorest). Given that the Bank of England’s main role is to keep inflation at 2%, you can see why Bailey is considering the rate rise.

Typically, though, the Bank of England cuts interest rates during lean periods to get people spending and stimulate the economy. It has historically tended to increase the rate during economic booms, to “cool down” the economy and prevent inflation getting too high.

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But almost two years after the arrival of COVID-19, even with some elements of normal life resuming, few would describe the current situation, after lockdowns, business closures and furlough, as economically booming.

The reason that an increase in interest rates now seems likely is that the inflation that we are seeing is unlikely to be as a result of economic growth. Among the facts, the Office for National Statistics calculated that in September 2021 the largest contribution to the inflation rate came from rising costs in transport; housing and household services (the cost of renting or buying, furnishing and maintaining a home); restaurants and hotels; and recreation and culture.

The key challenge for the Bank of England is to identify whether these price rises are temporary or not. Particularly important will be the monitoring of rising energy prices, which the bank predicts could push inflation even higher (to 4%) later in the year.

A banking balancing act

The big question is whether the British economy, which is still in a process of recovery, can afford a higher interest rate. For while recent data has pointed to a better than expected jump in GDP growth, the UK economy reportedly remains 3.3% below pre-pandemic levels.

The recovery seems to have stagnated mainly due to supply chain issues (labour and raw materials shortages), with the recent energy crisis creating even more uncertainty. Despite a jump in current unfilled vacancies to a record 1.1 million, the fact that the furlough scheme was only recently phased out suggests that the labour market might still be weak.

The danger is that interest rates could go up too soon, with a depressing effect on economic activity and the housing market – reaching the desired goal of decreasing inflation but at the expense of economic growth. In the words of one former Bank of England committee member, an interest rate hike now would be a “disaster”.

Overall, then, it is not yet clear whether an interest rate rise is in the economy’s best interest right now. However, the Bank of England policy mandate is clear in that it can’t afford to let inflation go out of control.

For now, we will have to wait while the the bank’s monetary policy committee carefully weighs up the options. But although the final policy outcome is the result of a vote, the governor’s remarks unambiguously point to an imminent interest rate rise – very possibly sooner than some economists (and many households) would like.

By Luciano Rispoli

Source: The Conversation

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Inflation declines in September

Inflation slowed unexpectedly in September as the Bank of England is set to tackle the acceleration by hiking interest rates.

Consumer Prices Index (CPI) rose 3.1 per cent in the year to September, down from 3.2 per cent to August, official data showed.

Increased prices for transport were the largest contributor to price rises, at 0.91 percentage points, according to the Office for National Statistics.

Restaurants and hotels made the largest downward contribution to the change in the inflation rate. This was because the government’s Eat Out to Help Out hospitality meal discount scheme of August 2020 dropped out of the annual comparison.

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The Bank of England said last month that expected inflation to rise slightly above 4 per cent in the last quarter of 2021.

Mike Hardie, head of prices at the ONS, said: “However, this was partially offset by most other categories, including price rises for furniture and household goods and food prices falling more slowly than this time last year.

“The costs of goods produced by factories rose again, with metals and machinery showing a notable price rise. Road freight costs for UK businesses also continued to rise across the summer.”

On a monthly basis, CPI increased 0.3 per cent in September 2021, compared with an increase of 0.4 per cent in September 2020.

Businesses have warned of inflationary pressures with energy prices rocketing in recent weeks.

By Emily Hawkins

Source: City AM

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UK economy grows on camping and dining out

The UK economy grew by 0.4% in August as more people dined out, went on holiday and attended music festivals.

The Office for National Statistics (ONS) said the services sector made the biggest contribution to economic growth in the first full month after all Covid restrictions were lifted in England.

It said arts, entertainment and recreation grew 9%, boosted by sports clubs, amusement parks and festivals.

There was also more demand for hotels and campsites.

Restrictions on social distancing were eased from 19 July.

The ONS said the UK economy is now 0.8% smaller than it was before the pandemic.

“The economy picked up in August as bars, restaurants and festivals benefited from the first full month without Covid-19 restrictions in England,” said Darren Morgan, director of economic statistics at the ONS.

“However, later and slightly weaker data from a number of industries now mean we estimate the economy fell a little overall in July.”

The ONS said economic growth fell by 0.1% in July compared with initial estimates of 0.1% growth.

Activity in accommodation and food services rose by 10.3% in August, within which hotels and campsites recorded 22.9% growth.

In travel, air transport and rail both grew in August as Covid-related measures eased, however both industry are still trading far below pre-pandemic levels.

‘Small rebound’

Emma-Lou Montgomery associate director at Fidelity International, said that while August’s growth “marks a small rebound” on July, “the worry remains that economic growth won’t even be in touching distance of pre-pandemic levels until well into next year”.

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She said supply chain disruption risks dampening consumer confidence.

“This all comes in the crucial lead up to Christmas, when suppliers and retailers should be firing on all cylinders,” Ms Montgomery said.”But with households facing steep price rises for everyday items, from the food shop through to the gas bill, there will be little desire – or capacity – to spend, spend, spend.”

Growth in the UK economy – everything produced, from new cars to haircuts to restaurant meals – isn’t at all slow by normal standards at 0.4% in a month. But we’re supposed to be bouncing back with growth of 7% this year.

What’s becoming increasingly clear, is that it’s not a lack of demand for goods and services that’s holding the recovery back but the inability of firms to supply that demand.

A big part of the reason? Shortages. In construction, for example, where business is not growing but shrinking, firms reported to the ONS that they’ve got healthy order books. But they can’t meet more orders, partly because of a shortage of materials in August (for example, wood and steel) and partly because of a shortage of skilled staff.

The ONS reports evidence that the shortage of haulage drivers is slowing down industries from pharmaceuticals to electric lighting. Exports of goods, too, are down by 13% compared with 2018.

Some of these shortages may be due to supply bottlenecks related to the post-pandemic global surge in activity. But without doubt some, notably the ongoing shortage of lorry drivers, are in large part related to Brexit.

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Elsewhere, economic growth was uneven with some sectors hit by shortages of materials. Output in construction fell by 0.2% in August and the sector remains 1.5% below pre-pandemic levels.

The ONS said: “This reflects recent challenges faced by the construction industry from rising input prices and delays to the availability of construction products – notably steel, concrete, timber and glass.”

The manufacturing sector expanded by 0.5% in August following a 0.6% in July. The ONS said growth was led by an increase in vehicle production “as it continues to recover following supply side challenges predominantly caused by the global microchip shortage disrupting car production”.

But it said the output in the manufacture of motor vehicles remains 14.5% below a peak in February this year.

Paul Dales, chief UK economist at Capital Economics, said: “Such drags may have become more widespread and significant in September and October, with the fuel crisis preventing some people from getting to work.”

He said Capital Economics’ activity indicator “suggests that GDP may not have increased at all in September”.

Martin Beck, economist at professional services firm, EY,said: “The recovery is certainly facing more headwinds.

“Rising inflation, driven by significant increases in energy prices, and the recent cut in Universal Credit are squeezing consumers’ spending power.”

Source: BBC

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UK economy picks up in August as GDP grows 0.4%

Bars and festivals lifted the UK economy as GDP grew by 0.4% in August, but remained 0.8% below the pre-pandemic level of February 2020, according to the Office for National Statistics (ONS).

The latest snapshot showed activity in the accommodation and food service sectors, as well as arts, entertainment and recreation, contributed most to growth in the UK’s dominant service sector, which makes up about 80% of the UK economy.

The service industries grew by 0.3% in August, bouncing back from a 0.1% drop in July, while manufacturing expanded by 0.5% following July’s 0.6% decline.

Overall production output climbed 0.8%, accelerating from July’s 0.3% rise, as crude oil and natural gas extraction bounced back following a temporary closure of oil field sites for planned maintenance. Construction continued to shrink, by 0.2%, and is now 1.5% below its pre-pandemic level.

Chip shortages which had hampered carmakers eased in August, the ONS said, helping manufacturing return to growth, but car output was still more than 14% below a peak in February.

In the three months to August, the economy grew by 2.9%, against forecasts of 3% growth.

The ONS also revised GDP for July 2021 down, from 0.1% growth to a 0.1% fall, due to a downward revision of data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured.

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David Page, head of macro research at AXA Investment Managers, said the figures for August were disappointing. “The Bank of England (BoE) will take account of this latest data as it considers the outlook for monetary policy in the November Monetary Policy Report meeting.

“On the face of it the marked slowdown in economic activity into Q3 should serve as a warning against too swift a tightening in monetary policy, particularly as GDP looks set to face ongoing headwinds from higher utility prices, cuts in Universal Credit and eventually increases in National Insurance all pressuring household incomes over what threatens to be a difficult winter.”

Page said AXA IM changed their forecast to envisage the first hike (0.15% to 0.25%) by the BoE in February next year. “We then consider a second in August (to 0.50%) and a third in May 2023 (to 0.75%),” he added.

Victoria Scholar, head of investment, interactive investor, said: “All sectors of the economy are still smaller than before the pandemic, with consumer facing services around 5% below their peak. Pressure remains on the UK economic outlook with the cost-of-living crisis, above-target inflation and rising Covid cases.”

The IMF warned on Tuesday that the UK’s recovery from coronavirus would probably lag behind other countries and by 2024 the economy would remain 3% smaller than the level forecast. Other countries, it forecast, would return to the growth predicted before the pandemic.

Derrick Dunne, CEO of YOU Asset Management, commented: “With the ONS recording a 0.4% increase in GDP for August, it would be tempting to think that growth may be back on an upward trajectory, but investors should be taking today’s figures with a pinch of salt.

“Sectors like accommodation, food services and entertainment fared the best as infection rates fell and people rushed to socialise with family and friends, however the current picture is somewhat less rosy. The UK is faced with a supply chain crunch, rising prices and labour shortages, all of which could create a drag on GDP growth as we move towards the usually busy festive period.

“While the outlook for the economy remains broadly positive, investors would do well to review their strategy and ensure it’s equipped to withstand a more drawn out recovery.”

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “Festival fans enjoying new-found freedom in August and strong campsite bookings helped lift economic output, with the arts entertainment and recreation sector growing by 9%.

“But the economy can’t rely on happy campers to sustain growth, given the storm clouds that have gathered over supply chains since the summer.”

Streeter predicts the Bank of England will not have an easy choice to make. “It certainly won’t be an easy ride for Bank of England policymakers when they meet next to decide when to raise interest rates. Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating,” she said.

Paul Craig, portfolio manager at Quilter Investors, said: “The creaking UK economy is taking its time to spring back to life. The problems lie now not with demand but with supply. Acute labour shortages in several pockets of the economy along with chronic skills shortages have the potential to frustrate the economic recovery, and could well dampen any expectations for a strong economic revival over the winter months.

“Once more, the UK economy will be going through structural changes as we establish our future relationship with Europe and the outside world after Brexit. This structural dislocation will no doubt weaken growth expectations.”

Sarah Giarrusso, investment strategist at Tilney Smith & Williamson, warned that the UK still faces headwinds, such as labour shortages and supply chain disruption which could lead to higher, stickier inflation. “Despite this, consensus forecasts for 2021 and 2022 annualised real GDP remain firmly in expansionary territory at 7.0% and 5.3% respectively.

“We expect the UK economy to continue its recovery and the environment to remain conducive for equities to outperform bonds,” she added.

By Pedro Gonçalves

Source: Investment Week

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Bank of England rate-setter: Brace yourself for interest rate rises very soon

One of the key rate-setters on the Bank of England’s Monetary Policy Committee has today said UK households should be primed for an interest rate rise “significantly sooner” than first thought.

Michael Saunders, the former Citigroup economist turned Threadneedle St wonk, noted that financial markets had already priced in a pending rate rise as economies look to dampen inflation.

Saunders told the Sunday Telegraph: “I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely, the decisions get taken at the proper time. But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”.

It’s a fresh sign that the Bank of England may be the first major central bank to raise rates as the world emerges from the Covid-19 pandemic.

Last month the nine-member Monetary Policy Committee voted unanimously to keep rates at the record low of 0.1 per cent.

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But Saunders and Deputy Governor Dave Ramsden voted to halt the BoE’s government bond purchases ahead of schedule.

Saunders said markets had fully priced in a February rate hike by the British central bank and had half priced in a December increase in borrowing costs.

“I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” he said.

The comments by Saunders came shortly after Bank of England Governor Andrew Bailey said inflation running above the central bank’s two per cent target was concerning and had to be managed to prevent it from becoming permanently embedded.

By Josh Martin

Source: Commercial Finance Network

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UK business output falls to lowest level since lockdown

UK business output has shrunk to its lowest level of growth since the reopening of the economy as staff shortages and supply chain disruptions battered productivity last month.

The closely-watched BDO Output Index suggests a slowdown across both manufacturing and services, falling more than five index points month-on-month to 100.69, effectively indicating average trend growth just months after the UK opened up.

The firm’s inflation index meanwhile jumped to a near ten-year high in the same month, as average prices continued to increase.

It is the latest in a series of data that suggest the UK recovery is slowing considerably, putting more pressure on Rishi Sunak ahead of the budget due at the end of the month.

Last week IHS Markit warned of a “severe loss of momentum” across the construction sector, often a bellwether for wider economic activity.

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The rise in energy prices, driven by higher wholesale natural gas costs, is being felt right across the economy.

“While a gradual deceleration in the pace of growth is to be expected as economies normalise after the pandemic, it is clear that acute labour shortages and supply chain disruption are weighing heavily on productivity,” said Kaley Crossthwaite, a partner at accountants BDO.

“Many businesses are caught between a rock and a hard place. Long-term planning for a post-pandemic and post-Brexit economy is crucial, but the significant challenges at their door make it increasingly difficult to focus beyond these short-term issues,” she continued.

The warning came just a week after Conservative party conference, during which PM Boris Johnson hailed the emergence of a new “high-skilled, high-wage” economy.

“Ultimately,” warned BDO partner Kaley Crossthwaite, “this could mean consumers end up paying more for less this winter.”

“Many businesses are caught between a rock and a hard place,” she said, acknowledging that long-term planning for a post-pandemic and post-Brexit economy, though crucial, was difficult for businesses dealing with the short-term issues.

Crossthwaite said: “The Chancellor’s autumn Budget will be watched closely later this month to see whether the government steps in to restore the confidence felt through the summer.”

The news follows a PwC report into consumer confidence which found that while consumer sentiment was still positive, and higher than in the period following the EU referendum, the energy crisis, inflation and driver shortage problems were starting to impact confidence in the run up to Christmas.

By Farah Ghouri

Source: City AM

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Analysis: six squeezes on the UK economy from bills to shopping to petrol

Britain is short of 100,000 lorry drivers, energy firms are sinking, food items are running scarce and employers are scrambling for staff as multiple crises erupt.

Deliveries
Many of the problems facing the economy relate to Britain’s shortage of 100,000 lorry drivers – 96% of logistics businesses are having problems recruiting, and businesses are starting to run short of warehouse staff, van drivers, mechanics, technicians, forklift drivers and transport managers, according to Logistics UK. It said that19,000 HGV drivers have left the UK because of the pandemic and Brexit and 45,000 new drivers have not been able to take tests due to Covid.

Petrol
Ministers were forced to deploy army tanker drivers to help fill petrol stations last week, as the transport fuel crisis pushed into its third week. The shortage, prompted by a lack of lorry drivers and by panic buying, has affected London and the south-east most severely. Fuel is now more generally available, but 12% of petrol stations in the region were still without fuel last Thursday, according to the Petrol Retailers Association.

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Bills
Gas and electricity bills went up £139 on average in October, and will rise again unless wholesale prices of natural gas fall. Customers may pay up to £600 more per year, and National Energy Action warned last week that the number of families struggling to heat their homes could rise by 1.5 million to 5.5 million. So far 12 energy firms have gone bust this year.

Industry
Gas bills are not capped for businesses, which led to fertiliser factories shutting down last month, creating a carbon dioxide shortage. Steel, glass, paper, ceramics and other heavy industrial manufacturers say they may be forced to stop production – which could mean the permanent closure of some plants.

Retail
Shelves in shops and supermarkets have been emptying. One in six adults have been unable to buy essential food items in the past two weeks, according to the Office for National Statistics, and nearly a quarter said they had not been able to buy other non-essential items. People are also waiting longer for prescriptions. The government has appointed a supply chain adviser but logistics firms believe the problems will get more severe in the run up to Christmas.

Vacancies
With about 2 million job vacancies to fill already, employers have started scrambling for about 100,000 temporary staff to fill Christmas roles, with Royal Mail, Tesco, Sainsbury’s, Amazon, Morrisons and John Lewis looking for staff. Ministers appear to have pinned their hopes on the end of furlough last month, which removed support for about 1 million workers on the scheme.

By James Tapper

Source: The Guardian

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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.

INFLATION

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.

GROWTH FADING?

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.

SUPPLY CHAIN PROBLEMS

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.

CONSUMER SPENDING

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.

JOBS AND WAGES

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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