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UK economy sees worst growth since 2012

The UK economy grew at its slowest rate since 2012 in November, meaning an interest rate cut from the Bank of England (BoE) could be on the cards soon.

UK GDP grew at 0.6% in the 12 months to November, the Office for National Statistics said today (13 January), down from 1% in October, representing the slowest annual growth rate for more than seven years.

The figures come after Monetary Policy Committee member Gertjan Vlieghe told the Financial Times he would “need to see an imminent and significant improvement in the UK data to justify waiting a little longer” to cut rates.

Sterling continued its decline on the news, with a 0.6% decline on Monday (13 January) seeing the currency drop below $1.30 once more. That buoyed the stockmarket, though, with the blue-chip FTSE 100 index rising 0.5% and FTSE 250 advancing 1%.

The economy declined by 0.3% in November alone, well below consensus expectations of zero month-on-month growth.

This was likely due to businesses bringing activity forward to before the 31 October Brexit deadline, said Andrew Wishart, UK economist at Capital Economics.

Upwards revisions of 0.2% and 0.1% to September and October’s figures respectively left growth in the three months to November at 0.1%, meanwhile.

However, November’s sharp decline “nonetheless leaves the economy on course to contract by 0.1% in Q4 as a whole”, Wishart said.

Rob Kent-Smith, head of GDP at the ONS, said growth in construction was offset by “weakening services and another lacklustre performance from manufacturing”.

“Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012,” he added.

Interest rate cut more likely

The figures fuelled speculation an interest rate cut could be closer than previously thought, particularly allied with Vlieghe’s comment.

Last week, both BoE Governor Mark Carney and fellow MPC member Silvana Tenreyro spoke positively about the possibility of a rate cut sooner rather than later.

Michael Saunders, one of two who voted for a cut at the last meeting, is set to speak on Wednesday.

Matthew Cady, investment strategist at Brooks Macdonald, said markets are currently pricing in close to a 50/50 chance of a 25 basis point cut to the UK’s current 0.75% Bank Rate.

“The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting,” said Cady.

With the BoE having already cut both growth and inflation forecasts and the next Brexit deadline of 31 January looming, Cady said “UK investors will need this monetary and fiscal support to fall back on, and any disappointment here could be difficult for markets to swallow”.

However, Wishart said a weak UK economy is “old news”, meaning today’s GDP figures “won’t seal an interest rate cut”, despite noting “it will be a close call”.

“In normal times, the MPC would already have cut rates. But it held off to see if the general election produced a revival in sentiment,” Wishart said.

“What really matters is what happens in the data for January. At the moment, we think the MPC may hold off from cutting rates.”

By David Brenchley

Source: Professional Adviser

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UK economic growth weakest since 2012 in November

Britain’s economy grew at its weakest annual pace in more than seven years in November, raising expectations that the Bank of England will cut interest rates later this month.

Monday’s official figures showed the economy in November – before last month’s decisive election win for Prime Minister Boris Johnson – was just 0.6% larger than a year before, the weakest expansion since June 2012.

The November figure represented a slowdown from annual growth of 1.0% in October, after that month’s growth pace was revised up from previously reported data.

Output in November alone shrank by 0.3%, the biggest drop since April. Economists polled by Reuters had expected unchanged output for the month.

The weak data, reflected the uncertainty of last autumn about Brexit and the election, said John Hawksworth, chief economist for accountants PwC.

“It is too early to say for sure if economic momentum will pick up in the new year now the political situation is clearer, but our latest survey of the financial services sector with the CBI does suggest some boost to optimism since the election,” he said.

Sterling fell and government bond yields headed lower as financial markets priced in a 50% chance the Bank of England will cut interest rates on Jan. 30, after its next meeting.

The BoE predicted in November that the economy would eke out limited growth in the fourth quarter, before recovering in 2020. That forecast assumes progress towards a post-Brexit trade deal and a reduction in U.S.-China trade tensions.

In the past week, BoE Governor Mark Carney – who steps down in March – and two other rate-setters, Silvana Tenreyro and Gertjan Vlieghe, said a rate cut could be needed if those assumptions prove over-optimistic.

Two more policymakers, Michael Saunders and Jonathan Haskel, already support a rate cut.

However, there have been some signs that business confidence has revived since Johnson’s Conservatives won an unexpectedly large majority in the Dec. 12 election.

That victory put Britain on course to leave the European Union on Jan. 31 with a transition deal. However, Johnson has only given himself 11 months to reach a long-term trade deal with the EU, and some businesses fear they could face tariffs and other obstacles to trade with the EU from 2021.

Looking at the three months to November, which smoothes out some volatility, the economy grew by 0.1% versus poll forecasts for a 0.1% fall, due to unexpected upward revisions to September and October output, which the ONS said reflected late survey returns.

“Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing,” ONS statistician Rob Kent-Smith said.

Editing by William Schomberg, Larry King

Source: UK Reuters

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Confidence rises in UK economy after election, but will it last?

Prime Minister Boris Johnson’s emphatic election win last month has led to a burst of optimism among British businesses and consumers, according to some early signals from the economy.

Johnson’s success in securing a large parliamentary majority, which ended a period of deadlock in Westminster, means Britain is on course to leave the European Union on Jan. 31 and start an 11-month, no-change transition period.

It also ended the prospect of a shift to the left in British politics. The opposition Labour Party had proposed nationalising key industries, taking stakes in many other companies and more state intervention.

However, some economists are sceptical about whether the pickup in confidence will translate into a meaningful boost to growth, which has lost momentum since the Brexit referendum in 2016 and slowed to a crawl in late 2019.

Some businesses worry that Johnson’s refusal to contemplate asking for an extension to the Brexit transition period – even if Britain has not sealed a new trade deal with the EU before the end of 2020 – risks creating another “cliff edge.”

Below are some of the early signals that show an improvement in optimism after the Dec. 12 election.

CFOs CHEER UP

Accountants Deloitte said on Friday that 53% of chief financial officers were more optimistic about their companies’ prospects than three months previously, the highest share since records started in 2008.

The Deloitte survey was conducted entirely after the election and chimed with the business expectations component of the IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) – a closely watched gauge of British business – which hit its highest level in December since September 2018.

The PMI was up markedly from a preliminary reading for the month that was based only on responses before the election, indicating a clear improvement in sentiment after the vote.

Nonetheless, the overall picture of the economy from the PMI remained consistent with no growth in the fourth quarter.

CONSUMERS MORE CONFIDENT

The public became much more upbeat about the prospects for Britain’s economy after the election, according to a survey commissioned by payment card company Barclaycard.

The proportion of people who said they were confident about the economy’s future rose 10 points to 41%, the highest since March 2017, according to the survey of 2,000 people conducted by Longitude Research from Dec. 17 to 19.

However, in recent years analysts have doubted how much consumer confidence in the economy really matters.

Britons have been among the most downbeat about their country’s economic prospects of all European Union countries, according to European Commission data, but their spending has continued to power the economy.

Conversely, while the Barclaycard survey showed an increase in optimism among consumers, the British Retail Consortium reported dismal Christmas trading for major store chains.

JOBS BOOST?

British employers increased hiring of permanent staff from job agencies last month for the first time in a year, a survey from the Recruitment and Employment Confederation (REC) showed, another sign of higher business confidence.

The survey was conducted Dec. 5 to Dec. 17, straddling the election result.

“With a new government in place and the path ahead looking more predictable, some businesses have decided that they have waited long enough,” REC chief executive Neil Carberry said.

Reporting by Andy Bruce

Source: UK Reuters

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Financial sector contributed record level of UK tax in 2019

Britain’s financial services sector contributed a record £75.5bn in tax in 2019, according to a new report on behalf of the City of London Corporation, amounting to 10.5 per cent of all government tax receipts.

The report, carried out by accounting giant PwC and released today, highlighted the value of financial services to the UK economy. Across the country the sector employs around three per cent of the UK workforce but contributed 11.6 per cent of all UK employment taxes thanks to significantly higher average salaries.

The figures will also put pressure on ministers to consider the importance of financial and professional services in a post-Brexit trade deal with the EU.

Catherine McGuiness, policy chair at the City of London Corporation, told City A.M.: “We mustn’t allow our enthusiasm to strike an early trade agreement either with the EU or with other partners around the world to lead us to a position where we accept a very flimsy trade agreement when it comes to services.”

The £75.5bn figure was only a slight increase from the £75bn collected in the year to March 2018, reflecting a challenging year for the sector. It was a notable slowdown from the £2.9bn growth in tax contributions seen between 2017 and 2018.

PwC’s report showed that of the 2019 figure, £33.4bn was paid by companies directly. The other £42.1bn was paid by employees through income tax and customers through levies such as VAT.

The amount of corporation tax financial services firms paid fell by 9.5 per cent year on year, meaning the sector paid less than it did in 2008. McGuiness said this was a “worry” and said it was due to the lower profitability of firms. Global trade tensions, political uncertainty and persistently low interest rates have created challenging conditions for much of the sector.

Barney Reynolds, head of financial regulation at law firm Shearman & Sterling, said he was positive about the trade negotiations with the EU. He said the City is “not only important to the UK, it’s an important global asset”.

Henry Parkes, senior economist at the Institute for Public Policy Research, said the report suggested the UK economy is “overly hooked on the finance sector”, however, and needs to “diversify”.

McGuinness said the City was about to face another challenging year. “We obviously will lose some EU-facing business but we need to make sure we make up for it in other ways,” she said.

By Harry Robertson

Source: City AM

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UK companies turn a little less gloomy over Brexit impact: BoE survey

British businesses turned less gloomy last month about Brexit’s eventual impact even though they expected the uncertainty to persist for longer, according to a survey conducted either side of Prime Minister Boris Johnson’s election win.

While most businesses still think Brexit will hurt sales over the long run rather than increase them, the gap narrowed in December, the Bank of England’s monthly Decision Makers Panel showed on Thursday.

The proportion expecting an eventual sales boost from Brexit rose to 17% from 13% in November, the highest since May 2018, the BoE survey showed.

Those expecting an eventual hit to sales fell to 33% from 37%.

Investors are watching for signs that Johnson’s victory in the Dec. 12 election has lifted worries about Britain’s political stability, potentially providing a much-needed boost to the economy which slowed to a crawl in late 2019.

Still, the outlook in the short-term remains challenging.

The BoE survey showed 53% of businesses cited Brexit as one of their top sources of uncertainty, the lowest share in six months and down from 55% in November.

Separately on Thursday, a British Chambers of Commerce survey of businesses showed “protracted weakness” across the economy in the fourth quarter, while an IHS Markit/CIPS report confirmed the sharpest decline in factory output since 2012.

Johnson has said he will clinch a deal settling Britain’s future trade ties with the European Union before a deadline on Dec. 31 2020, although trade experts are skeptical about the chances of a comprehensive agreement being struck by then.

Some 42% of companies who took part in the BoE survey did not expect Brexit uncertainty to be resolved until 2021 at the earliest, up from 34% in November.

The survey of 2,887 business executives was conducted between Dec. 6 and Dec. 20.

Reporting by Andy Bruce; Editing by William Schomberg

Source: UK Reuters

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Small business confidence at an eight-year low

Confidence among small businesses reached an eight-year low this month, according to a new survey.

The Federation of Small Businesses (FSB) Small Business Index (SBI) was negative for a sixth straight quarter, reaching its lowest point since the last recession.

The confidence index now stands at -21.6.

The survey, which was conducted at the beginning of the month, showed that 46 per cent of small firms expected their performance to worsen over the next three months.

Just 24 per cent said they expected performance to improve.

Confidence is particularly low among retailers, with two-thirds expecting their businesses performance to decrease over three months.

The survey also found that the amount of small businesses that reported declining profits, 42 per cent, had reached a five-year high.

The domestic economy was given as the biggest reason for the lack of business confidence by business owners.

FSB director of external affairs and Advocacy Craig Beaumont said he hoped there would be a turnaround in the new year after the election gave the business community Brexit certainty.

“The small business community has been stifled by uncertainty for more than three years,” he said.

“This quarter, the added uncertainty that accompanies a general election made it even harder for small firms to plan, hire and increase profits.

“They say that the night is darkest before the dawn, and small firms will be hoping that the old adage holds true.

“The incoming government has made some very positive commitments to the small business community – particularly where connectivity, employment costs, business rates and late payments are concerned – it now needs to deliver.”

By Stefan Boscia

Source: City AM

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UK employment set to fall in 2020 despite wages returning to pre-2008 levels, warns think tank

According to a Resolution Foundation report, wages were set to increase in the New Year despite slow economic growth.

This would take wages, when adjusted for inflation, past their April 2008 peak for the first time, reversing an 11-year pay downturn.

But it predicted this wage turnaround may not be sustainable as economic uncertainty surrounding Brexit sets to weaken the job market.

The report pointed to a fall in youth employment, a decline in the number of vacancies and a poor employment outlook by businesses as potential warning signs of a stagnating job market.

This gloomy forecast follows a mixed year for the British economy.

2019 saw the UKs weakest GDP growth outside of recessions since the Second World War, but employment levels and pay growth hit a record high.

The employment rate hit a new high of 76.2% at the end of the year, while pay growth peaked at 3.9% in June.

Commenting on the report, Torsten Bell, Chief Executive at the Resolution Foundation, said: “2019 was a bad year for the economy, which looks set to have recorded its weakest GDP growth outside of recessions since the war.

“However, the part of the economy that households really care about – the labour market – defied the economic gloom and delivered record employment and decent pay growth.”

He added: “As we look ahead to the new year, the crucial living standards question facing the country is whether the labour market can continue its bullish run into 2020.

“The future is an uncertain land, but our best guess is that 2020 will be very different from the last few years.

“We may well see a welcome return to record pay levels, but a less welcome retreat from record employment, with worrying signs including falling vacancies and rising youth unemployment.”

Mr Bell also called on the government to focus on falling business investment in the New Year, adding that this issue “received next to zero discussion during the election campaign”.

Written by: Eleanor Langford

Source: Politics Home

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Business confidence since Johnson victory at highest since EU referendum

Confidence among UK business leaders soared after prime minister Boris Johnson’s re-election to its highest level since the EU referendum in 2016.

A poll by the Institute of Directors (IoD) recorded the sharpest upward swing in positive sentiment month-on-month since its records began three-and-half years ago.

Net confidence levels in the UK economy for the year ahead rocketed from a -18% reading in November to +21% in December.

Confidence levels in their own firms also leapt from 26% to 46% among the 952 directors surveyed in the IoD’s ‘Confidence Tracker’ index.

The number of directors who expected their organisations to increase investment in 2020 also ticked upwards.

Many firms have held back on investment as political instability and economic uncertainty have taken a heavy toll on the economy since the Brexit vote.

But Tej Parikh, the IoD’s chief economist, said the Conservatives’ decisive election victory after a period of political deadlock over Brexit had given many leaders “a little more festive cheer.”

“A firm majority government means that business leaders, whatever their personal views, now at least have a framework around which they can put in place plans to invest, hire, and expand,” he said.

Many business chiefs have also expressed their relief since polling day at avoiding a Labour government, amid fears over leader Jeremy Corbyn’s plans on tax, union rights, public spending, nationalisation, and business regulation.

Parikh welcomed “some exciting stocking-fillers” from the new Johnson administration, including promises on lower business rates, skills investment, and higher research and development support through tax credits.

“For the longer-term, ambitious proposals on broadband, infrastructure, and regional growth are music to the ears of many in the business community who want to finally see the dial shift on the UK’s lagging productivity growth,” he said.

But he said continued uncertainty over Britain’s longer-term future “remains a cause for concern.” Many in the business world fear Johnson’s pledge to abandon EU rules less than a year after Brexit leaves too little time to ensure a smooth transition and close trading relationship from 2021.

Parikh added: “Our members’ confidence has proven sensitive to Brexit developments over the past few years, and this is likely to continue during negotiations in the year ahead.”

Business chiefs surveyed raised Britain’s uncertain trading status with the EU as their second most pressing concern, behind current UK economic conditions.

Separate survey data in recent weeks has painted a bleak picture of the UK economy despite record high employment, with political uncertainty and a global economic slowdown hitting output in certain sectors.

By Tom Belger

Source: Yahoo Finance UK

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Advisers could see business rate cut under govt plans

Advice firms could benefit from the government’s plans to change the calculation cycle for business rates, as announced in today’s Queen’s Speech.

The Queen’s Speech, unveiled in parliament today (December 19), contained a reference to “conduct a fundamental review” of business rates and the Conservative MP John Redwood had tweeted shortly before the speech was delivered that he expects business rates to be “cut”.

Business rates are a tax on a business’s property.

Because the calculation for business rates is made on the basis of its ‘rateable’ value, meaning it is partly based on where a commercial premises is located, high street based businesses have been hit harder than some online retailers that have their warehouses located in more remote locations.

Part of the problem is that under the current system the rateable value of a property is calculated every five years, and so businesses paying rates based on the value of a high street location could be paying them at a level that might not reflect the declining popularity of high streets in recent years.

Under the government’s plans, the next date for reviewing business rates has been moved forward to 2021 and the revaluations will take place every three years instead of five years. The government will also conduct a wider review of the rates system.

The government statement accompanying the Queen’s Speech stated: “We will also progress legislation to bring forward the next business rates revaluation by one year from 2022 to 2021 and move business rates revaluations from a five-yearly cycle to a three-yearly cycle.

“This will allow the government to press ahead with delivering an important reform that has been strongly welcomed by business.

“More frequent revaluations will ensure that business rates bills are more up-to-date reflecting properties’ current rental values. Moving to three-yearly revaluation will make the system more responsive to changing economic conditions.”

The government’s reforms also include switching from RPI to CPI indexation, increasing the threshold for the standard multiplier to £51,000, and doubling the threshold for Small Business Rate Relief.

Minesh Patel, an adviser at EA Financial Solutions in London, said: “Business rates are a substantial part of the cost base of our firm. I think it is about a third of the rent we pay for our business premises, and we have already had word this year that the people who do our website will cost more next year, and the software we use will also go up in price, so a cut in business rates would really help our business.”

By David Thorpe

Source: FT Adviser

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Brexit relief for UK economy might not last long

Britain’s economy will cast off some of the Brexit uncertainty that has held it back since 2016 after Prime Minister Boris Johnson’s election triumph, but the risk remains of another “cliff-edge” showdown with Brussels in a year’s time.

With Britain’s exit from the European Union on Jan. 31 now a foregone conclusion, the question for investors is whether Johnson will stick to his campaign promise not to delay the end-of-2020 deadline for a new EU trade deal.

That deadline is widely seen as tough to meet, given the scale of issues to be resolved.

In the short term, the biggest election victory for Johnson’s Conservative Party since Margaret Thatcher’s 1987 triumph removes a major brake on growth: the deadlock in parliament over how, or even whether, to proceed with Brexit.

Johnson said in a victory speech on Friday that Britain would leave the EU on Jan. 31 “no ifs, no buts, no maybes.”

His election win also banishes the prospect of a sharp shift to the left under the Labour Party which promised nationalisations, more power for trade unions and a much bigger role for the state, which had worried many business leaders.

“For Brexit, this all means that Johnson’s deal will be ratified, most likely allowing the UK to leave the EU at the end of January,” economists at ING said in a note to clients.

“But more importantly, it could give the prime minister the political breathing room to ask for an extension to the transition period.”

The pound jumped by the most in nearly three years on the first sign of the scale of Johnson’s victory and shares in companies that rely on domestic British economy rose. [GBP/]

Investors pared back their bets on the Bank of England cutting interest rates as the uncertainty about the way ahead for Britain’s economy lifted, at least in the short term.

The world’s fifth-biggest economy has slowed since voters decided to take Britain out of the EU nearly 3-1/2 years ago.

Leaving the bloc, which accounts for nearly half the country’s exports, is seen as a drag on its economic growth over the long term.

But the new sense of clarity about Brexit, at least in the short term, is likely to lead to a pick-up in the pace of growth in the coming quarters, economists said.

British government bond prices fell sharply as trading in London’s gilt markets opened, helped not only by the conclusive election result but also by signs of an end to the U.S-China trade deal that has weighed on the global economy. [GB/]

But economists turned their attention quickly to what the election result meant for Johnson’s longer-term Brexit plans.

He promised during the election campaign not to extend a Brexit transition period beyond Dec. 31 2020.

That raises the prospect of tariffs and other barriers coming into force for Britain’s trade in goods and services with the EU in just over a year’s time.

Economists at RBC Capital Markets said the new government would probably try to keep a no-deal Brexit on the table for as long as possible to maintain leverage with the EU in the trade talks.

“However, with such a comfortable winning margin Johnson is not reliant on any faction of his party, in particular the hard-Brexiteers who might have tried to steer him toward a hard Brexit at the end of the transition period,” they said.

“Some form of extension now looks more likely even if some effort will be made to give the impression that is not the transition period that the Conservative Party promised not to extend in its manifesto.”

But economists at Citi said they thought Johnson would not try to delay the transition phase because he won support from voters who backed the Conservatives for the first time because of the party’s tough stance on Brexit.

“In this scenario, when the UK exits the EU Single Market and Customs Union on 31 December 2020, we expect a mild recession to follow in 2021 as divestment among exporting sectors accelerates,” they said.

Editing by Stephen Addison

Source: UK Reuters