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London set to drive UK recovery with business confidence highest in capital

London businesses are set to drive the UK’s economic recovery from the Covid-19 crisis over the coming months.

Firms in the capital are the most confident out of all regions across the country, according to Lloyds Bank’s latest businesses barometer survey.

65 per cent of London businesses are optimistic about their medium term prospects, up three percentage points over the last month.

Elevated confidence levels in the capital underlines the scale of recovery London businesses have undergone since the depths of the pandemic.

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The capital was one of the hardest hit areas of the UK due to a large proportion of the country’s leisure and hospitality sector being concentrated in the city.

Business confidence in the UK as a whole edged down three percentage points over the last month to 43 per cent as a result of firms becoming more pessimistic about the health of the British economy.

However, positivity is well above the long term average of 28 per cent.

An easing of supply chain breakdowns and shortages of crucial materials has improved trading conditions and boosted firms’ confidence levels.

But, swelling costs are making firms more willing to hike prices to protect margins. 45 per cent of businesses expect to increase prices, the highest proportion since Lloyds started tracking the data.

An increase in labour supply after the furlough scheme was fully wound down at the end of September has partially resolved businesses’ struggles in attracting enough workers to deliver normal services.

According to Lloyds, 90 per cent of businesses plan to bring back more than half of furloughed staff, indicating unemployment is unlikely to undergo a sharp uptick.

Hann-Ju Ho, senior economist Lloyds Bank Commercial Banking, said: “While economic optimism saw a slight dent in October due to rising costs and the on-going supply chain issues, it is clear that firms are still feeling relatively buoyant as overall business confidence remains high and above the long term average.”

By Jack Barnett

Source: City AM

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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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UK recovery still unsteady despite July job surge, finds report

The relaxation of lockdown rules in July sparked a surge of hiring among UK firms, but staff shortages caused by the pandemic and Brexit could still undermine the recovery, the professional services group BDO reported on Monday.

BDO’s latest business trends report found that the jobs market strengthened last month, as hospitality venues such as restaurants and bars were allowed to operate without Covid-related capacity limits.

But many firms reported labour shortages, partly due to the pandemic – with workers being told to self-isolate by the NHS Covid app – and Brexit, BDO said. This created a scramble for workers, pushing up wages and leaving bosses fretting about rising costs.

BDO’s employment index rose by 1.57 points, from 106.05 in June to 107.62 in July, showing the strongest pickup in hiring so far this year. Business optimism dipped back from the record high recorded in June, while BDO’s inflation index – which tracks rising prices – was close to June’s four-year high.

Pressure on global supply chains, and problems importing goods and materials due to the UK’s exit from the EU, both pushed up costs, BDO reported, along with rising wages as employers paid more to attract and retain talent.

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Some companies have recently introduced signing-on bonuses of up to £10,000 to attract job applications.

Last week, the Bank of England predicted that unemployment had peaked, with a tight labour market leaving some employers struggling to hire staff. The Bank also forecast that inflation would hit a 10-year high of 4% by the end of the year.

“The surge in employment is a timely boost and shows how quickly the relaxation of restrictions has impacted the economy,” said Kaley Crossthwaite, a partner at BDO LLP. “It now appears that one of the biggest problems faced by employers will be filling roles as both the pandemic and Brexit give rise to staff shortages.”

A separate survey from the accountancy firm Azets found that two-thirds of UK small businesses felt positive about the UK’s economic outlook over the next 12 months, with more than half of firms expecting to expand their workforces.

But the SME barometer also found a regional split, with 71% of London and south-east small firms feeling positive about the UK’s economic outlook, in comparison with 60% in Scotland and 59% in the north-east, north-west and Yorkshire and Humberside.

Many firms, especially outside London and the south-east, cited Brexit as a threat – along with the economy, Covid-19 and competition.

“After a year of deep crisis and upheaval, with the vaccination programme accelerating across Europe and lockdown restrictions beginning to ease, the prospect of an economic recovery feels within our grasp. At the same time, plenty of uncertainty remains,” said Chris Horne, the group CEO of Azets.

By Graeme Wearden

Source: The Guardian

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Disappointing GDP figures show UK recovery lost momentum ahead of second lockdown

UK GDP grew by a record quarterly amount in the three months to September, but failed to make up for its historic slump the previous quarter as Covid-19 brought large swathes of the economy to a halt.

The UK economy grew by a record 15.5 per cent in the third quarter, the Office for National Statistics said, but the rebound fell short of expectations as the economy struggled to maintain its recovery.

The record-breaking third-quarter growth in UK GDP is below the 15.8 per cent expansion forecast by economists, but is the largest quarterly growth ever recorded in the UK economy.

The growth in the three months to September follows a record-breaking slump of 19.8 per cent in June, as the coronavirus pandemic and subsequent lockdown measures brought large swathes of the UK economy to a halt.

UK GDP grew by a slower-than-expected 1.1 per cent in September even before the latest restrictions on businesses were introduced, ONS data showed. Economists polled by Reuters had forecast a 1.5 per cent expansion for the month.

“GDP probably won’t return to September’s level until the spring,” said Samuel Tombs of Pantheon Macroeconomics.

“GDP still was 8.6 per cent below its January 2020 peak in September, even though virtually all businesses had resumed trading and Covid-19 restrictions were light touch back then,” he continued.

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Tombs added that he expects the introduction of a second national lockdown in England to lead to a contraction in GDP in the final quarter of 2020.

“On a monthly basis,” he continued, “it probably won’t recover to September’s level until the spring, when it should be possible for Covid-19 restrictions to be sustainably relaxed.”

Responding to the GDP figures, Bank of England governor Andrew Bailey said there was still a “huge gap” in the economy, but added that news of a potential effective Covid-19 vaccine would help lift economic uncertainty.

Last week, the Bank said the world’s sixth-biggest economy was likely to shrink by a record 11 per cent in 2020 before growing by just over seven per cent in 2021.

The International Monetary Fund has forecast a 10.4 per cent slump in UK GDP for 2020 and growth of 5.7 per cent the following year.

However, news of a potentially effective Covid-19 vaccine has since emerged, raising hopes that next year’s recovery could be stronger than the BoE’s or IMF’s forecasts.

Chancellor Rishi Sunak said the figures “show that our economy was recovering over the Summer, but started to slow going into Autumn”.

Sunak added that the measures the government has since taken to curb the spread of Covid-19 “mean growth has likely slowed further since then”.

“While there was confirmation that the UK exited recession, the historically strong headline figure masks a loss of momentum through the quarter, as the temporary boost from the release of pent-up demand as the economy reopened gradually faded,” said Suren Thiru, head of economics at the British Chambers of Commerce.

“With output still well short of pre-crisis levels there was little sign of a ‘V’-shaped recovery even before the latest lockdown,” he added.

By Anna Menin

Source: City AM

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