UK GDP

A combination of a weak March handover and the Queen’s Jubilee in June is set to see the UK economy contract in the second quarter.

An easing of coronavirus restrictions resulted in the UK economy growing 0.8% over the first quarter. But this respectable outturn masked a deterioration in the monthly profile. After a 0.7% expansion in January, GDP was unchanged in February before going on to contract by 0.1% in March. While this was in line with our expectations, City economists had looked for it to be steady in March.

On a sectoral basis, a 0.2% decline in services output was driven by a 15.1% fall in motor trade activity as persistent bottlenecks impacted a typically bumper month for sales. Meanwhile, weaker pharmaceutical manufacturing and mild March temperatures resulted in a 0.2% fall in industrial production. By contrast, construction output jumped 1.7% on the back of repair work following storms in February as well as office refurbishments.

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Looking past these distortions, today’s figures reinforce our expectation that the UK economy will contract in the second quarter. Rock bottom consumer confidence will spur precautionary saving as households eye the income squeeze that is set to come to a head later this year from higher energy prices. There is also no let up in sight for capacity-constrained sectors, limiting any boost afforded by the rotation in consumption back from goods to services. These factors are set to result in subdued April and May prints, before a sharp contraction in June on account of the Queen’s Jubilee bank holiday weekend.

However, we suspect the UK will avoid falling into a technical recession (i.e., two consecutive quarters of negative growth). Contractions incurred by the Jubilee celebrations in 2002 and 2012 were followed by sharp July rebounds. We think history will repeat itself and ensure that GDP grows over the third quarter as a whole. Beyond this, we think that the UK economy could head back into reverse in the fourth quarter as the Ofgem price cap rises by a further 40% or so. A key factor will be what additional support the Chancellor provides and whether this comes in the autumn Budget or if he bows to pressure for an emergency fiscal package.

In any case, we doubt the Bank of England’s Monetary Policy Committee (MPC) will be deterred from further tightening policy. It will almost certainly raise interest rates at both its June and August meetings, taking Bank rate to at least 1.50%. But it is less clear whether the MPC will subsequently raise it to 2.00% by year-end, as markets expect. If the labour market starts to deteriorate, the committee may find it hard to justify further tightening before the window to do so closes in 2023.

By GEORGE BROWN

Source: City AM

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The UK economy contracted by 0.1 percent in March, according to data out Thursday from the Office for National Statistics.

The release also reported that GDP flatlined in February, revised down from a preliminary estimate of 0.1 percent growth.

The March slump stemmed from weakness in wholesale and retail trade and consumer services, including the repair of motor vehicles and motorcycles industry, the ONS said. Production also fell, although this drop was partly offset by an increase in construction. The UK economy is now 1.2 percent above its pre-pandemic levels in February 2020.

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“The U.K. economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year,” said Darren Morgan, director of economic statistics at the ONS.

A range of service sectors, such as hospitality, transport and travel, had initially rebounded after the pandemic, said Morgan. But there were also “some downwards effects from other services, including retail, wholesaling and car sales.” The health sector also shrank, as the U.K’s “test and trace” system was scaled down.

Overall, U.K. GDP growth grew by 0.8 percent in the first quarter of 2022. That’s below analysts’ expectations of 1 percent and down from the 1.3 percent increase in the last quarter of 2021.

BY LOUIS WESTENDARP

Source: Politico

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The UK economy barely grew in February as GDP expanded by just 0.1 per cent, with the economy suffering from the impact of weaker contributions from the health and manufacturing sectors and disruption from storms.

February’s growth was lower than markets were expecting and compared with with 0.8 per cent in January, according to the Office for National Statistics.

The main area of growth was services, which grew by 0.2 per cent, but this was offset by a 0.6 per cent fall in production and a 0.1 per cent fall in construction levels.

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Consumer-facing services grew 0.7 per cent in February, driven by a 33 per cent rise in travel agency and tour operator services, though these services continue to be 5.2 per cent lower than their pre-coronavirus levels.

A 47 per cent slowdown in the NHS’s test and trace programme and a 65 per cent fall in the Covid vaccination programme contributed to a 1.1 per cent detraction from GDP in the month but the ONS said it was important to note this followed particularly high levels of activity in December and January.

Monthly GDP now sits 1.5 per cent higher than its pre-Covid level in February 2020.

The ONS noted it had received anecdotal reports of the impact of the storms Dudley, Eunice and Franklin which hit the UK between February 16 and 21, but it said it was difficult to quantify these effects.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that while the economy was above pre-pandemic levels, its underlying health may be weaker given increased healthcare activity has been the “crutch” supporting the UK economy.

“The main contributor to the recovery from the start of the crisis has been human health and social work activities and the reduction of the test and trace scheme and vaccination programme partly accounted for the slowdown in February,” she said.

“We still need to see a shift upwards in overall productivity levels but with the labour crunch intensifying, borrowing costs rising and business investment flagging that is proving elusive.”

Derrick Dunne, chief executive of You Asset Management, said: “GDP currently sits at 1.5 per cent above pre-pandemic levels, however with consumer confidence plummeting and inflation expected to rise once again on Wednesday, fears that the UK could enter a recession this year are rife.

“Whether or not this will become a reality remains to be seen but, against this uncertain backdrop, it would be prudent for investors to review their portfolio and consider where any adjustments may be needed to keep them on course to meet their long-term goals.”

Chancellor of the Exchequer, Rishi Sunak, welcomed the positive growth seen across the UK economy in February.

“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin’s unprovoked invasion,” he said.

By Sally Hickey

Source: FT Adviser

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The UK economy grew by just 0.1% in February, despite a strong resurgence of both inbound and outbound tourism activity – including travel agencies, hotels, and tour operators.

But growth has slowed sharply since January, when gross domestic product (GDP) jumped by 0.8% as people returned to normal life following a surge in Omicron rates in December 2021.

The figure of 0.1% for February falls short of the 0.3% growth predicted by most analysts.

Data from the Office for National Statistics (ONS) showed that monthly GDP is now 1.5% above its pre-pandemic level of February 2020.

But despite a rise in tourism, the UK economy was dragged down by a fall in production, which slipped by 0.6% and construction, which fell by 0.1%, the ONS said.

Car production in particular has fallen steeply in recent months, pushed down by the ongoing chip shortage and the closure of Honda’s plant in Swindon.

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Growth was also hampered by the reduction in the NHS Test and Trace and vaccination programmes, which made a strong contribution to GDP at the start of the year, according to Darren Morgan, director of economic statistics at the ONS.

The UK’s economy grew by 7.4% last year in a record rebound from a devastating 2020, when it suffered its biggest annual fall since just after World War One.

But last month, Chancellor of the Exchequer Rishi Sunak revised down the UK’s 2022 growth forecast to 3.8% from 6% in light of the growing cost of living crisis and surging energy prices following Russia’s invasion Ukraine.

In a statement on Monday following the release of the most recent GDP figures, Mr Sunak said: “I welcome the positive growth seen across the economy in February, which continues to recover from the pandemic, boosted by the support we provided.”

“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin’s unprovoked invasion,” he said, adding: “We are supporting families with the cost of living with £22bn of support this financial year.”

The average UK household will experience a £2,553 drop in income this year, half of which is as a result of the invasion of Ukraine, according to the Centre for Economics and Business Research (CEBR).

There is also expected to be a considerable jump in the prices we pay at the supermarket and petrol pump.

The CEBR predicts that inflation will now peak at 8.7% next quarter and then stay twice as high as expected until the second half of 2023. This means a shopping basket that cost £20 a year ago will cost almost £22 in the next few months.

The impact of deadly storms Dudley, Eunice and Franklin, which all hit the UK between 16 and 21 February, may have also weighed on economic growth, the ONS said.

“Most of those reporting a negative impact were in service industries with comments received from businesses operating in areas including accountancy, leisure parks and holiday centres, photography, hairdressing and beauty, leasing of construction equipment, restaurants and takeaways, and marquee hire,” the report stated.

“However, some businesses reported a positive impact on turnover such as those working in fencing, torch sales, and temporary off-grid power.”

Source: Sky News

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• Despite the end of the COVID-19 restrictions from late January, the immediate outlook for the UK economy is uncertain
• Intensifying price pressures and imminent tax hikes will erode real household incomes.
• Persistent supply chain disruptions and acute labour shortages will continue to constrain output developments
• The narrow EU-UK trade deal weighs down on UK exports to the reviving EU economy.

UK real GDP grew by 1.0% quarter on quarter (q/q) in the fourth quarter of 2021, compared with an identical rise in the previous quarter.

In annual terms, the economy rose by 6.5% year on year during the same quarter, which implied that the economy grew by 7.5% in 2021, the largest gain since the Second World War. However, this was after a 9.4% contraction in 2020, with the UK enduring a larger-than-average hit from COVID-19 and public health restrictions.

The UK outlook for 2022 is uniformly less upbeat, flagged by sliding growth projections.

Despite the end of most COVID-19 restrictions from late January 2022, we expect real GDP growth to slow in the first half of this year for the following reasons.

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Many UK households face escalating cost of living pressures

The consumer price index (CPI) in the twelve months to January increased to 5.5% in January, the highest rate since the series began in January 1997, and since March 1992 (7.1%) when using the historical-modelled data.

More inflation pain lies ahead. Elevated energy futures prices forced the UK energy regulator Ofgem, which sets the tariff caps twice a year in April and October, to announce significant hikes. The tariff cap in April this year will increase by 54%, the largest increase since the government introduced the cap in 2019. This will imply notably higher household utility prices for 22 million households from 1 April.

The eye-watering rise in utility prices will ratchet up the anticipated peak in the 12-month rate in the CPI to over 7% in April 2022. Worryingly, Ofgem is expected to announce a further sharp increase in October, pointing to a higher-than-previously-anticipated inflation rate at the end of 2022. Meanwhile, households face more challenging fiscal and monetary policy conditions.

Employees face rising social security contributions from 1 April 2022 to finance the overhaul of the social care system and to allocate more resources to deal with the backlog of non-COVID-19 illnesses. The plan entails a 1.25-percentage-point rise in the National Insurance from April 2022. Meanwhile, the continued and broad-based climb in inflation prompted the Bank of England (BoE) to announce its first back-to-back interest rate hike in seventeen years in its February 2022 meeting. Furthermore, we expect further increases at both the March and May meetings, taking the Bank Rate to 1.0%. In addition, we acknowledge the increasing probability of an additional hike to 1.25% in November 2022.

Overall, we expect an intensifying squeeze on household confidence and real incomes. Early indicators are not encouraging, with real wages in retreat from late-2021. Furthermore, we now expect household disposable income adjusted for inflation to shrink in 2022, which would be the third time that it has fallen since 1990.

In addition, a greater share of savings accumulated during the lockdowns could be required to finance spending on essential goods as opposed to consumer durables and leisure and hospitality services.

Intensifying pressure on household budgets will weigh down on consumer spending developments and act as a handbrake on the pace of GDP growth in the next few quarters.

Supply constraints spill into 2022

The IHS Markit/CIPS UK Composite PMI survey reveals a continued shortfall of workers in January, preventing many companies from achieving full capacity.

Supply chain disruptions continue to elevate input cost inflation in January, with manufacturers and service providers having to lift aggressively their prices charged.

Firms cite rising salary payments alongside higher energy and logistics costs as significant obstacles.

Brexit strikes again

With the UK leaving the EU single market and Customs Union, UK exporters face additional checks for safety and security documentation, and customs papers, implying that the new EU-UK trading relationship does not deliver frictionless trade.

This is flagged by UK exporters failing to exploit the revival of domestic demand across the EU. According to Eurostat data, UK merchandise exports to the EU in nominal terms shrunk by 13.0% during 2021, compared with US and Chinese exports to the EU rising by 14.3% y/y and 22.6% y/y, respectively, over the same period.

The much-delayed full UK custom controls on EU imports are now enforced from 1 January 2022, adding to the supply chain disruptions because of tougher logistical cs industry warned that even if UK firms get their paperwork in order, they are dependent on hundreds of thousands of small- and medium-sized (SME) exporting businesses from across the EU.

Activity is likely to regain momentum temporarily from mid-2022.

Global supply chain constraints should ease alongside receding consumer price inflation and corporate cost pressures. In addition, uncertainties linked to COVID-19 developments should diminish.

Business investment plans are lifted by temporary tax breaks, which will end in April 2023.

By Raj Badiani

Source: IHS Markit

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On the back of a milder than anticipated hit during December, the UK economy can celebrate expanding at its fastest rate since the Second World War during 2021.

Recording a 7.5% annual rate of expansion, the figure is the largest since 1941 – also making Britain the fastest growing advanced economy during the year as a whole. However, the cloud to accompany the silver lining was that the UK economy still remained smaller than in the fourth quarter of 2019 – immediately before the pandemic hit.

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The UK suffered a deeper pandemic-hit recession than most of its peers, contracting by 9.4% during 2020. However, its recovery has been bolstered by billions in government aid and now the economy is forecast to outperform all other Group of Seven nations again this year.

The news is likely to impact the Bank of England’s focus in recent months – it is expected to step up efforts to curb inflation, with more interest rate rises likely.

Still, GDP dropped 0.2% in December with the Omicron variant keeping many consumers at home – however, this was below the 0.5% that had been forecasted. January is likely to be weak with Omicron restrictions extending into the New Year.

Speaking to Bloomberg, Yael Selfin, chief economist at KPMG UK, noted the squeeze on household incomes from rising prices and tax rises would also impact economic activity in the coming months.

By Paul Lucas

Source: Mortgage Introducer

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