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UK economic bounce-back to weaken, analysts say

The United Kingdom’s economic recovery from the coronavirus pandemic slowed between July and September and is expected to be weaker than previously predicted in the coming months, largely because of supply-chain problems and higher energy costs.

Official figures from the Office for National Statistics, or ONS, show consumer spending increased as the UK emerged from pandemic-battling lockdowns, but other sectors of the economy shrank disappointingly.

Overall, growth during the three-month period stood at 1.3 percent, which was well down on the 5.5 percent recorded between April and June. The slowdown leaves the UK economy 2.1 percent smaller today than in the final quarter of 2019.

Grant Fitzner, chief economist at the ONS, told the BBC the service-sector growth was largely down to a tax holiday for property purchases.

“However, these were partially offset by falls in both the manufacture and sale of cars,” he said.

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The Guardian newspaper reported on Monday that EY Item Club had used the results, and other data, to predict the “tougher” part of the UK’s economic recovery is yet to happen.

EY said in its autumn forecasts there will be “higher and more sustained inflation” in the coming months, with rises in energy prices and supply chain disruption denting previous estimates.

EY said the UK’s GDP could rise by 6.9 percent this year, instead of the 7.6 percent it had expected. GDP fell by almost 10 percent last year. And EY said GDP growth in 2022 could run at 5.6 percent, instead of the 6.5 percent it had previously predicted.

Martin Beck, chief economic adviser to EY Item Club, told The Guardian: “With the boost from reopening the economy now largely passed, the UK was always expected to enter a tougher phase of the recovery. …Although inflation looks like it’ll peak higher-and stay higher for longer-than first anticipated, it doesn’t look like this will tip into ‘stagflation’; the combination of sluggish growth and persistent high inflation.”

But EY did have some good news. It said unemployment will likely run at 4.3 percent in the final quarter, instead of the 5.1 percent it had previously predicted.

Sky News added on Monday that recent disappointing economic data and a lack of investment had led the head of the Confederation of British Industry, or CBI, to say the British economy now feels second-rate.

Tony Danker said in a speech on Monday at the CBI’s annual conference that the government must find ways to deliver economic growth to all parts of the nation. “I don’t know a country in the world… where governments aren’t active in economic geography,” he said in an apparent swipe at London’s decision to cancel part of a planned upgrade of railway lines in the North of England.

Source: Hellenic Shipping News

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Pound plunges to yearly low against dollar on underwhelming UK GDP figures

The pound has plunged to its lowest level against the dollar this calendar year driven by traders dumping the currency after fresh data showed the UK economic recovery is stalling.

Pound sterling dipped to day low of $1.3365, the weakest the pound/dollar exchange rate in 2021, following the release of new GDP data from the Office for National Statistics (ONS) this morning.

The fall was triggered by currency traders selling off sterling holdings due to a weaker than expected quarterly UK GDP clip, which came in at an underwhelming 1.3 per cent for the three months to September, soured sentiment toward sterling.

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The drop was compounded by currency traders pouring into the dollar after a fiery inflation print published yesterday strengthened the prospect of the US Federal Reserve raising interest rates.

Data from the US Bureau of Labor Statistics shows prices are rising at their fastest pace since 1990 in America.

The pound has rebounded over the last month, but was sent tumbling after the Bank of England last week decided to hold interest rates at a record low 0.1 per cent despite expecting inflation to hit at least five per cent in April next year.

Currencies tend to weaken if inflation is strong due to holders of separate currencies losing purchasing power.

By JACK BARNETT

Source: City AM

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Impact of Brexit on economy ‘worse than Covid’

The impact of Brexit on the UK economy will be worse in the long run compared to the coronavirus pandemic, the chairman of the Office for Budget Responsibility has said.

Richard Hughes said leaving the EU would reduce the UK’s potential GDP by about 4% in the long term.

He said forecasts showed the pandemic would reduce GDP “by a further 2%”.

“In the long term it is the case that Brexit has a bigger impact than the pandemic”, he told the BBC.

His comments come after the OBR said the cost of living could rise at its fastest rate for 30 years, with suggestions inflation could hit almost 5%.

Speaking after Wednesday’s Budget, Mr Hughes said recent data showed the impact of Brexit was “broadly consistent” with the OBR’s assumption that the leaving the EU would “reduce our long run GDP by around 4%”.

“We think that the effect of the pandemic will reduce that (GDP) output by a further 2%,” he added.

The Treasury has been contacted for comment.

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What is GDP and how is it measured?
GDP or Gross Domestic Product is one of the most important ways of showing how well, or badly, an economy is doing. It is a measure – or an attempt to measure – all the activity of companies, governments and individuals in an economy.

In a growing economy, quarterly GDP will be slightly higher than the quarter before, a sign that people are doing more work and getting (on average) a little bit richer. If GDP is falling, then the economy is shrinking.

The UK voted to leave the EU in 2016 and officially left the trading bloc on 31 January 2020, however, both sides agreed to keep many things the same until 31 December 2020, before a new trade deal was announced and implemented on 1 January this year.

Supply chain problems
Both the pandemic and Brexit have played a part in current supply chain issues across the UK, and have further exposed the scarcity of lorry drivers, which has resulted in recent shortages of products for businesses and some empty shelves for customers.

However, in the OBR’s latest report, the independent body said “supply bottlenecks had been exacerbated by changes in the migration and trading regimes following Brexit”.

Supply chain issues has led to the government granting short-term visas to EU workers across certain sectors, including the haulage industry.

The British Poultry Council has said turkey farmers will do their best to ensure Christmas “is as normal as it can be”, but warned shortages are likely, due to a shortage of seasonal overseas workers.

The government has assured consumers that turkeys will be available for the festive season and has also deployed temporary visas in a bid to bolster worker numbers.

Source: BBC

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Budget 2021: Unemployment likely to peak at 5.2%

Chancellor Rishi Sunak revealed during the Budget 2021 that unemployment is expected to peak at 5.2%, according to the Office for Budget Responsibility (OBR).

As a result, Sunak said this will mean: “over two million fewer people will be out of work than previously feared.”

The OBR expects gross domestic product (GDP) to expand by 6.5% this year, compared to the 4% forecast at the Budget 2021 in March.

This is below what the Bank of England has predicted, which is 7.4% of growth.

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UK GDP rose by 5.5% between April and June, compared with the first three months of the year, more than any other country within the G7 group.

Rising inflation has been predicted to reach 3.1% and likely to rise further.

Sunak said this is due to global factors, such as the world opening up after the pandemic and demands for goods increasing.

Addressing Parliament, Sunak said if recovery is strong, the government will be able to return to spending 0.7% of GDP on overseas aid by 2024, and that spending is growing by 3.8% a year in real terms.

By Jake Carter

Source: Mortgage Introducer

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UK economy bounced back by more than thought in Q2 before slowdown

UK economy grew by more than previously thought in the April-June period before what looks like a sharp slowdown more recently as post-lockdown bottlenecks, including a shortage of truck drivers, mount.

Gross domestic product increased by 5.5% in the second quarter, the Office for National Statistics said, stronger than its preliminary estimate of growth of 4.8%.

The ONS said the data had been adjusted to take account of more complete data from the health sector as well as an update of its sources and methodology for calculating output.

The revision means Britain is no longer the worst-performing economy among Group of Seven developed countries, when comparing GDP in the summer of 2021 with its level at the end of 2019. It is now tied with Germany and above Italy.

The figures provided a more complete picture of Britain’s swift economic bounce-back from its coronavirus lockdown earlier this year, but there are now signs of a loss of momentum due to shortages of supplies and staff as the global economy reopens.

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“While the upward revisions to GDP are clearly welcome, Q2 was three months ago, and the recovery appears to have stagnated since,” Ruth Gregory, an economist at Capital Economics, said.

“Even so, given that there is now thought to be less spare capacity in the economy that will only encourage the Bank of England to hike rates in the not too distant future.”

On Wednesday, BoE Governor Andrew Bailey said he thought the UK economy would regain its pre-pandemic level of output in early 2022 – a month or two later than the BoE had forecast in August.

Despite the slowdown, the British central bank has signalled that it is moving towards a first interest rate hike since the pandemic as it expects inflation to head above 4%.

Thursday’s data showed households increased their spending by more than 7% in the April-June period and they dipped into their coronavirus lockdown savings to fund it.

The savings ratio, which measures the income households saved as a proportion of their total available disposable income, fell to 11.7% from 18.4% in the first quarter of 2020, the ONS said.

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GDP growth was driven by the services sector, especially in the accommodation and food industry where output rose by 87.6% in quarterly terms as it reopened from lockdown.

Manufacturing output rose by 1.8% in the second quarter, despite a shortage of microchips hurting car production. Food and beverage manufacturing performed strongly.

The ONS said construction output had broadly returned to its pre-pandemic level.

The data also showed that Britain’s current account deficit with the rest of the world held steady at 8.6 billion pounds in the second quarter, equivalent to 1.5% of gross domestic product. In the first quarter, the shortfall was 1.6% of GDP.

Excluding volatile trade in precious metals, the deficit widened to 1.8% of GDP from 0.2% in the first quarter, due to a worsening of Britain’s trade balance and a fall in earnings on foreign investments.

Reporting by William Schomberg and Andy Bruce

Source: Reuters

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Improved picture for UK economy as concerns remain

Lorry drivers may be in short supply and fuel hard to come by at the pumps. But, things aren’t as bad as they seem. At least that’s according to the Office for National Statistics. Official statisticians have improved the outlook for the UK economy.

But such optimism is not shared by the Federation of Small Businesses which warns businesses may be facing ‘an autumn storm’.

At least the ONS in its revised figures doesn’t consider the UK economy to have suffered its worst collapse since the Great Frost of 1709 anymore.

The statistics show that in 2020, the year of Covid, GDP shrank by 9.69%, an improvement on the estimate of 9.8%, meaning things were worse in 1921. Just. That year saw a plunge of 9.71%.

The revised figures also show that GDP increased by 5.5% in April-June this year, better than the estimate of 4.8%.

But that may be of little comfort to small businesses facing ‘challenges on many fronts’, according to the FSB.

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Mike Cherry, National Chair of the Federation of Small Businesses (FSB), said: “From rising energy and input costs to staff shortages and supply issues, the removal of some of the support measures brought in to hold off the worst effects of the pandemic on businesses will be tough for many to navigate.

“It’s potentially a dangerous moment. As the weather turns colder, so too will the operating environment for many firms. With recent economic growth numbers having fallen below expectations, the upcoming festive season may not provide as much of a boost as hoped to many small businesses’ bottom lines.”

The skills shortage is continuing to bite – not least in tourism and hospitality, which also have to factor in a higher rate of VAT as well.

He added: “Firms feel assailed on all sides, from energy prices and fuel shortages to longer-term changes to taxes which will disincentivise growth and investment.”

However, Britain’s manufacturers hit a record high level of output and orders in the last quarter as growth surged in response to the UK and overseas economies opening up, according to Make UK and business advisory firm BDO.

Stephen Phipson, Chief Executive at Make UK, said: “Growth prospects continue to accelerate for manufacturers as economies at home and abroad continue to open up. However, supply chain shortages and the rapidly escalating increase in shipping costs are threatening to put roadblocks on the road to faster growth despite the current optimism.”

And, the Confederation of British Industry says that private sector activity grew at an above average rate in the three months to September, although there was a slowdown.

The slowdown was fairly broad-based, with growth softening in consumer services (+6% from +30%), distribution (+29% from +53%) and manufacturing (+16% from +22%). Meanwhile, business & professional services firms reported a slight uptick in the pace of growth (+39% from +32%).

Anna Leach, CBI Deputy Chief Economist, said: “The private sector recovery has slowed this month as the immediate boost provided by loosening COVID-19 restrictions fades amidst a mix of labour and materials shortages, and supply chain disruption.”

By Richard Wright

Source: Punchline Gloucester

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UK economy bouncing back slowly as lockdown restrictions ease

The UK economy grew by almost 5 per cent in the second quarter of this year, new figures have revealed.

Data released today by the Office for National Statistics (ONS) shows a 4.8% rise in gross domestic product (GDP) between April and June, coinciding with the easing of lockdown restrictions.

Along with the reopening of bars and restaurants, the ONS said another factor contributing to the national income growth was the increase in the number of people attending their GP surgeries.

According to the official statistics body, the number of people visiting their doctor for non-Covid complaints rose, increasing the consumption of health services by 5.1% in the second quarter.

Deputy national statistician for economic statistics Jonathan Athow said: “The UK economy has continued to rebound strongly, with hospitality benefiting from the first full month of indoor dining, while spending on advertising was boosted by the reopening of many services.

“Health services also showed growth, with many more people visiting their GP.

“GDP is still around two percentage points below its pre-pandemic peak.”

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Economists at Pantheon Macroeconomics had expected GDP to grow by 0.6% in June, and 4.7% across the quarter.

The Bank of England had predicted growth of 5% across the quarter.

However, the surge of the Covid-19 Delta variant and the boom in the number of people self-isolating undermined some of this growth.

Nevertheless, the data marks a major improvement from the first months of the year.

In the first quarter the economy contracted by 1.6% as it battled with prolonged lockdowns.

That data covered the period to the end of March, so did not include the reopening of outdoor hospitality in April and indoor hospitality a month later.

Chancellor Rishi Sunak said: “I know there are still challenges to overcome, but I feel confident in the strength of the UK economy and the resilience of the British people.”

But the Liberal Democrats and the Trades Union Congress warned against thinking that support could be withdrawn from the economy because of higher GDP.

TUC general secretary Frances O’Grady said: “The economy is still fragile, with nearly two million people still on furlough.

“A premature end to furlough will needlessly cost jobs and harm our economic recovery.”

Liberal Democrat Treasury spokeswoman Christine Jardine said: “These figures shouldn’t lull us into thinking that all our problems are solved. We still face potentially massive obstacles if the Government goes ahead with ending the furlough scheme and the Universal Credit uplift at the end of next month.

“Hard-pressed families and struggling businesses need more reassurance than improving GDP figures – they need support extended into next year.”

The ONS also reported that the UK’s trade deficit, excluding precious metals, rose by £3.6 billion to £5.2 billion in the second quarter of the year.

In June exports to non-EU countries fell by 5.6%, mainly due to drops in sales of pharmaceuticals and cars to countries outside Europe.

Exports to EU countries rose 1.2% in June, the statisticians said.

By Hannah Rodger

Source: Herald Scotland

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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 economy grew by 2.3 per cent in April as high street and hospitality reopened

UK economy grew by 2.3 per cent in April as government restrictions affecting economic activity continued to ease.

It was the fastest monthly growth of gross domestic product (GDP) since July last year and exceeded economists’ forecast of a 2.2 per cent jump.

In comparison with April 2020, monthly GDP in April 2021 is estimated to have grown by 27.6 per cent.

“Today’s GDP number confirms that the UK is witnessing a strong recovery,” said Emma Mogford, fund manager of Premier Miton.

“The release of pent up demand, as consumers return to shops and restaurants, is significant. Investment by businesses is also picking up, now that there is greater certainty over the outlook post-Covid and post-Brexit.”

Service sector shines

The service sector grew by 3.4 per cent during the month, with consumer-facing services reopening as Covid restrictions eased.

Output in the production sector fell by 1.3 per cent during April, the worst fall since January as three of the four sectors contracted.

Within production, mining output dropped sharply, by 15 per cent, because of planned temporary closures for maintenance of oil field production sites.

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Meanwhile, the construction sector contracted by two per cent following a strong March, with new work slowing down faster than repair and maintenance.

“Today’s figures show that although confidence is returning to the construction sector, this remains delicate and growth in specific work sectors is mixed,” said Clive Docwra, Managing Director of McBains.

“While overall output remains just above pre-pandemic levels, driven by an increase in repair and maintenance work, new work contracts declined which bucks recent growth trends.”

Sunak: ‘Promising sign’

April’s GDP remains 3.7 per cent below the pre-pandemic levels seen in February 2020, but is now 1.2 per cent above its initial recovery peak last October.

“Today’s figures are a promising sign that UK 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 per cent from February’s estimate of five per cent.

That would be the fastest annual growth since 1941 when Britain was recovering during World War Two.

“We’ve grown accustomed to erratic GDP figures since the pandemic, but today’s data confirms that the UK reached a turning point in April, when the re-opening of non-essential retail and easing of hospitality restrictions boosted spending,” said Jonathan Sparks, chief investment officer at HSBC.

“Consumer confidence has surged higher in recent months as the reopening continues, which bodes well for more domestically-focused companies.”

By Damian Shepherd

Source: City AM

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