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UK economy posts slowest growth in six months but beats lower expectations

The UK economy grew at its slower rate in six months between September and November, data released today shows, but still managed to beat lower expectations.

GDP grew by 0.2 per cent in November compared to the month before, and by 0.3 per cent in the 12 weeks to the end of the month, the Office for National Statistics (ONS) said today.

That is the weakest GDP growth since an increase of 0.1 per cent between March and May this year.

Head of National Accounts, Rob Kent-Smith, said: “Growth in the UK economy continued to slow in the three months to November 2018 after performing more strongly through the middle of the year.

“Accountancy and housebuilding again grew but a number of other areas were sluggish.

“Manufacturing saw a steep decline, with car production and the often-erratic pharmaceutical industry both performing poorly.”

Retail sales fuelled by Black Friday activity boosted the services sector to a 0.3 per cent rise in November, slightly offset by a small contraction in legal activities and accounting.

The services sector also posted 0.3 per cent growth for the three months to the end of November, with professional services and sciences acting as the largest contributor.

Meanwhile the UK production industry fell to a 0.4 per cent decline in November, with unplanned maintenance hitting miners and weak manufacturing also to blame.

Over three months that fall doubled to a 0.8 per cent drop, with all four sub-divisions reported a decline for the first time since October 2012.

Manufacturing hit a six-month high last month as Brexit stockpiling pushed up sales.

Andy Soloman, boss of business growth experts Yomdel, called the latest economic figures “fairly positive news”, against lower predictions as the UK faces Brexit uncertainty and retail woes.

“Of course, while the overall figures may seem positive some sectors are suffering more than others and one more so than the industrial manufacturing and production,” he added.

“One has to wonder if this area of UK industry has already begun to scale down production in anticipation of a bad or no deal Brexit and the potential evaporation of EU demand for their products.”

However, construction continued to perform well after experiencing high demand in summer, growing by 2.1 per cent between September and November, despite then hitting a three-month low in December, according to a closely-followed index.

Sterling moved up against the dollar after a slight dip following the figures, rising from 1.274 to 1.276.

Joshua Mahony, senior market analyst at trading platform IG, said: “While many will be looking towards the improved November GDP figure of 0.2 per cent, depressed industrial and manufacturing production numbers for the month are somewhat less encouraging.

“Ultimately traders are waiting on Tuesday’s vote as the primary source of directional bias for the pound, with Theresa May expected to suffer a scolding defeat that will leave the UK in limbo once again.”

Source: City A.M.

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Productivity setback adds to worries for UK economy

British productivity growth slowed to a two-year low during the three months to last September, official figures showed on Wednesday, reinforcing concerns about the underlying health of the economy ahead of Brexit.

Weak productivity growth has bedevilled rich economies around the world since the global financial crisis, but the problem has been particularly acute in Britain.

Most economists see it as the main reason wages have failed to rise materially despite the lowest unemployment rate in a generation.

Britain’s departure from the European Union is adding headwinds, with business investment falling as firms hold off while it remains unclear if they will retain tariff-free access to EU markets after March 29.

Britain’s overall economy has slowed since the 2016 Brexit referendum and appears to have lost more momentum in late 2018 as Prime Minister Theresa May struggled to get support in parliament for her plan for a smooth exit from the bloc.

The Office for National Statistics said annual growth in output per hour slowed to 0.2 percent in the third quarter of 2018, its weakest since the same period in 2016, after touching an 18-month high of 1.6 percent in the second quarter.

Compared with the second quarter alone, output per hour fell by 0.4 percent.

“The latest relapse in productivity will reinforce concerns over the UK’s overall poor productivity record since the deep 2008/9 recession,” economist Howard Archer of consultants EY ITEM Club said.

Brexit was probably already hurting productivity by discouraging firms from purchasing labour-saving technology that would save money in the long run in favour of hiring staff who could be sacked easily if the economy sours, Archer said.

The Bank of England expects productivity to grow by about 1 percent a year over the medium term, compared with 2 percent before the financial crisis.

Unit labour costs — a driver of medium-term inflation pressures that measure how much it costs employers to produce a given level of output — rose by an annual 2.8 percent, the fastest in a year and a half.

The BoE pencilled in annual unit labour cost growth of 1.75 percent for 2018 in its last forecasts in November.

Source: Yahoo Finance UK

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Disappointing end to 2018 for UK economy could be confirmed this week

A disappointing end to 2018 for the UK economy could be confirmed by official GDP figures later this week, analysts have warned.

Last week the closely-followed IHS Markit/ CIPS Purchasing Managers’ Index (PMI) revealed a three-month low in UK construction sector activity in December and a 29-month low in job creation in the services sector.

But the manufacturing sector posted a near-record increase in stock holdings in December.

Economists predicted a 0.1 per cent rise in GDP for November, when the Office for National Statistics release figures on Friday – it would leave the UK on track for the lowest GDP rise since 2009.

“We think that a repeat of the previous month’s modest 0.1% expansion in the size of the economy is likely,” Martin Beck, analyst at Oxford Economics, said.

Beck added that while a composite measure of PMIs in November dropped to the lowest level since July 2016, it would be offset by a strong performance in the retail sector and upbeat industrial data for the month.

The research firm also expected GDP to rise 0.3 per cent in the fourth quarter to leave 1.4 annual growth – the lowest since 2009.

Daiwa Capital Markets also said last week’s PMI data implied “minimal growth” in the final quarter of the year and predicted GDP growth of 0.1 per cent in November, unchanged from October, but on track for a “sharp slowdown” from the 0.6 per cent growth in the third quarter.

The investment bank’s analysts also expected manufacturing and construction output to be stronger for November than the previous month but a slowdown in services activity.

They said: “The manufacturing and construction PMIs, released the past couple of days, provided a mixed picture of business sentiment at the end of the year.

On the whole, however, we took a downbeat message from them, not least as the boost to manufacturing activity mainly reflected stock building ahead of a possible no-deal Brexit.”

Source: City A.M.

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UK private pensions deficit more than doubles

The shortfall of all UK private defined benefit (DB) schemes has jumped by £59bn in one month, to £107bn at the end of December, according to data from JLT Employee Benefits.

At the end of November, the total deficit stood at £48bn, while at the end of December last year it reached £119bn.

The funding level of these pension funds is now at 93 per cent, which compares with 97 per cent in the previous month.

FTSE 100 companies saw scheme deficits increase by £19bn to £20bn, while in the FTSE 350 the increase was £23bn to £29bn.

According to Charles Cowling, chief actuary at JLT Employee Benefits, the increases in these shortfalls are due to Brexit uncertainties, which have intensified considerably in recent weeks and are weighing on UK financial markets, with significant falls in UK equities and pressure too on Sterling.

He said: “All of this gave rise to increases in the outlook for inflation and a lowering of expectations for economic growth.”

However, Mr Cowling said that while 2018 was a turbulent year for pension schemes it was not all negative.

He said: “Markets were initially strong in the face of considerable political uncertainty and signs emerged that interest rates are at last on the way up.

“That said, there is no sign yet of an unwinding of the Bank of England’s position on quantitative easing. Additionally, the latest mortality analysis increasingly points to a sustained slowing down in the rate of improving life expectancy.

“All of this is good news for pension scheme deficits which have shown some modest improvement over the past year. At one point during the year, before Brexit fears resurfaced, the aggregate position for FTSE 100 pension schemes moved into surplus for the first time in a decade.”

Companies and their pension schemes face “a very mixed picture”, Mr Cowling noted.

He said: “Some have successfully navigated the turbulent markets, have paid in significant additional contributions and are now looking to lock down on emerging pension surpluses by securing pension liabilities in the insurance market.

“We believe that 2019 will be another bumper year for insurance company buy-outs, possibly enhanced by the emergence of other superfund consolidators, who are looking at different and cheaper routes for companies to offload their pension liabilities.”

However, other companies are still facing extremely difficult times, he stated.

He said: “They may have gambled too much and in vain on equity returns and rising interest rates to save them from debilitating pension deficits. In particular the retail sector is seeing very difficult trading conditions. Christmas 2018 does not appear to have been kind to the high street.

“Household names such as Debenhams and Marks & Spencer are under pressure – particularly from hedge funds holding short positions – and it seems sadly inevitable that HMV will not be the only retail business falling into administration on the back of a poor Christmas.”

Source: FT Adviser

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Brexit worries slow UK growth to near standstill

Britain’s economic growth slowed to a crawl at the end of 2018 and the housing market is stalling, according to data published on Friday, less than three months before Brexit.

A closely watched business survey indicated firms were growing more anxious, while figures from the Bank of England and mortgage lender Nationwide painted a picture of households reining in spending.

Britain is due to leave the European Union on March 29 but what will actually happen on that day remains far from clear.

The future of Prime Minister Theresa May’s deal struck with the EU hangs in the balance as a parliamentary vote looms, raising the possibility of Britain leaving the EU without a deal to smooth the economic shock.

Calls for a second referendum — which May has rejected — are growing.

Friday’s figures indicated that the disarray is starting to affect the economy.

Lending to consumers grew at its slowest pace in nearly four years in November and the number of mortgage approvals fell by far more than expected, the Bank said.

Nationwide said its house price index had grown in December at the weakest annual pace in nearly six years.

Overall, Britain’s economy looks on track for quarterly growth of just 0.1 percent in the fourth quarter, data company IHS Markit estimated, based on its monthly purchasing managers’ index (PMI) surveys of businesses.

November and December were the weakest two months for morale among services firms, which make up the bulk of the economy, since March 2009 — around the low point of Britain’s last recession — the PMI indicated.

“The latest UK services PMI provides further evidence that the economy has lost most, if not all, of the momentum it had last summer,” ING economist James Smith said.

The headline IHS Markit/CIPS UK services PMI rose slightly more than forecast by economists polled by Reuters, to 51.2 in December. But the increase was one of the slowest since the Brexit referendum in 2016.

“(Clarity) on Brexit is needed urgently in order to prevent the economy sliding into contraction,” said IHS Markit’s chief economist, Chris Williamson.

LENDING SLOWS

The Bank figures showed the annual growth rate in unsecured consumer lending had slowed to 7.1 percent in November from 7.4 percent in October, the smallest increase since March 2015.

The data chimed with signals from many retailers that consumers had reined in their spending in late 2018.

The number of mortgages approved for house purchase fell to 63,728 in November, the Bank said, the lowest figure since April.

Nationwide said house prices had fallen 0.7 percent from November, the biggest monthly fall since July 2012. Compared with a year earlier, prices were up just 0.5 percent compared with a 1.9 percent rise in the year to November.

Both readings were below all forecasts in a Reuters poll of economists.

Economist Samuel Tombs from the consultancy Pantheon Macroeconomics said the house price data amounted to “a bad end to the worst year since 2012”.

BoE Governor Mark Carney warned last month that in the event of a “disorderly” departure from the EU — which is not the central bank’s base-case scenario — house prices could plunge 30 percent as part of a broader economic shock.

Source: UK Reuters

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UK economy ends 2018 ‘stuck in weak holding pattern’

The UK economy ended 2018 “stuck in a weak holding pattern”, according to what is billed as the UK’s largest private sector survey of business sentiment and a top indicator of UK gross domestic product growth.

The latest quarterly economic survey from the British Chambers of Commerce, published today and covering some 6,000 firms with a million-plus employees collectively – has flagged “stagnating” levels of growth and business confidence due to elevated Brexit uncertainty and other economic pressures.

Suren Thiru, the BCC’s head of economics, said the survey suggests UK economic conditions were “worryingly subdued” during the final quarter of 2018. The business body said the findings highlight the impact current levels of uncertainty are having on a “stalling” economy as growth in domestic sales and orders fell, recruitment difficulties sit near record highs and price pressures persist.

Looking at services firms, a key driver of UK economic growth, the percentage reporting an increase in domestic sales and orders fell to a two-year low – dropping from +22 to +18 and from +17 to +14 respectively.

It also saw recruitment difficulties hover at a near record-high, at 70 per cent, down slightly from the 72 per cent seen in the previous quarter, while the percentage looking to recruit rose to 50 per cent.

Additionally, struggles in hiring were the joint highest since the survey began in 1989 in the manufacturing sector, reported by more than four-fifths of firms, and those attempting to recruit remain unchanged at about two-thirds.

The BCC survey said the results “highlight the extent to which labour shortages have risen in the UK”, and indicate an increase in price pressures facing firms.

The percentage of manufacturers expecting to raise prices is at its highest in a year, at +43, up from +38 in the third quarter, and almost three times higher than its pre-EU referendum average.

Cashflow continues to be a concern for both sectors, with the balance of firms reporting improved cash flow remaining weak. The BCC called on all political parties to “find a way forward and ensure that the UK does not face a messy and disorderly exit from the EU”, helping boost business confidence and investment.

Adam Marshall, BCC director general, said: “Throughout much of 2018, UK businesses were subjected to a barrage of political noise and drama, so it’s no surprise to see firms report muted domestic demand and investment. In this new year, the government must demonstrate that it is ready to act to turbo-charge business confidence.”

He said the UK government should focus on providing clarity on conditions in the short term and avoid a “messy and disorderly” Brexit. “Business communities won’t forgive politicians who allow this to happen, by default or otherwise.”

Source: Scotsman

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UK business anxious about economic outlook

Almost three quarters ( 74%) of FTSE 500 business leaders expect the country’s economy to decline over the next year – up from 66% the previous year, according to Ipsos Mori’s Captains of Industry survey.

This increasing pessimism is tied in with the uncertainty around Brexit, with 95% saying it’s the most important issue Britain currently faces.

Most are not confident in the government’s ability to negotiate a good deal for UK businesses with the EU ( 68%). Only one fifth ( 19%) of business leaders agree they are confident – down from 28% last year.

More than half ( 55%) of business leaders view the decision to leave the EU as a significant risk to their company and three quarters ( 73%) disagree with the statement that the decision to leave the EU will bring significant new opportunities for their company.

They think Brexit to date is worse than they predicted 12 months ago with 67% feeling their company’s business situation is worse than it would have been if the UK had voted to stay in the EU (compared with 56% last year).

However, 92% are confident their company can adapt to the consequences of leaving the EU and half of business leaders ( 50%) expect the business for their own company to improve over the next 12 months, with one fifth ( 19%) expecting it to get worse.

Looking forward, three quarters ( 78%) of business leaders think that overall, the UK leaving the EU with no deal would have a negative impact on their business.

Business leaders’ confidence in economic policy remains low.  A third ( 38%) disagree with the statement that in the long term, this government’s policies will improve the state of the British economy.

But they remain in support of the Conservative government with 94% of respondents disagreeing that Labour’s policies would improve the state of the British economy.

Ben Page, CEO of Ipsos Mori, said: “Britain’s largest businesses feel Brexit is having a more profound impact on British business than our business leaders thought it would a year ago – 67% of Captains think that their company is worse off.

“As with the public, business is losing confidence in the government’s ability to manage Brexit, but have no confidence in Labour doing any better. More positively, most think they will adapt, but nearly all think leaving the EU with No Deal will be bad for their business.”

Source: Research Live

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France could overtake UK as world’s sixth biggest economy as Brexit bites

France will temporarily overtake the UK to become the world’s sixth biggest economy as Brexit takes its toll, a report has said.

The Centre for Economics and Business Research (CEBR) said that while a no-deal Brexit would do the most economic damage in the short-term, a depressed British economy is inevitable in any case due to lower business and inward investment. This could give France – or possibly India – a chance to catch up.

However, CEBR’s 2018 World Economic League Table, which makes predictions for 180 countries’ economies up until 2033, forecasts the UK returning to the sixth spot after the dust settles in 2020 and staying there until at least 2023.

CEBR also predicts that in the event of Brexit leading to Scottish and Northern Irish independence, the rest of the UK will still be a larger economy than France in 2026 due to France “not really coming to terms with reducing its bloated public sector and resulting higher taxes”.

The US remains the world’s largest economy, but China is predicted to steal the coveted top stop by 2032. Currency collapses led to falls in the rankings for Argentina (down four places to 30th), Pakistan (down three to 44th) and Iran (down 10 places to 40th).

Douglas McWilliams, deputy chairman of CEBR, said: “[The table] shows that despite global uncertainty and tightening in US monetary policy which has pushed down some of the emerging market currencies, the 21st century is still likely to to be the Asian century.

“In 2003, the world’s five largest economies were the US, Japan and three European countries. Thirty years later, three out of the top five economies are expected be Asian and only one will be European. This is one reason why even though Brexit will be disruptive in the short term, it is not thought likely to do much long-term damage to the UK economy and, on some assumptions, could even boost it.”

This follows the news that Britain’s economy has slowed since the 2016 referendum and growth is now at its lowest in almost a decade.

Earlier in the year, the British Chambers of Commerce forecast that 2019 would be the weakest year for growth since the country’s last recession, due to depressed business investment and weakened consumer demand.

Source: Yahoo Finance UK

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Company directors’ optimism in UK economy plunges on Brexit fears

BUSINESS leaders’ confidence in the UK economy has tumbled to its lowest for more than 18 months as Brexit fears dominate, a poll by the Institute of Directors reveals.

The poll of 724 company directors, conducted between December 5 and 20 and published today, shows business leaders in all nations and regions of the UK are pessimistic over the economic outlook on a 12-month view.

The IoD noted that its confidence tracker showed overall optimism about the economy had recovered to be in positive territory briefly earlier this year, boosted by the initial agreement of a Brexit transition period. But the IoD flagged the fact that business leaders’ optimism over the UK economy had fallen steadily since April.

Tej Parikh, senior economist at the IoD, said: “Business leaders are looking ahead to the new year with trepidation about the economy. While we saw cautious optimism emerging when the Brexit talks appeared to be moving towards a transition period after March 2019, that has utterly dissipated now. There can be no doubt that the tumultuous Brexit process is having a damaging impact on firms’ outlooks. The prospect of a no-deal in the near future will be weighing heavily on directors’ minds.”

He added: “Politicians must not forget that every day of Brexit confusion is a day we aren’t focused on the long term. Leaving the EU has consumed the political agenda since the referendum, deflecting attention from critical challenges we face, including boosting growth across the UK and addressing widening skills gaps.”

The IoD noted investment would likely remain subdued. It flagged its finding that, subtracting the proportion expecting to cut investment from that planning to increase capital expenditure, only a net seven per cent of business leaders anticipate a rise.

Mr Parikh said: “Uncertainty is already causing businesses to delay investment, hiring decisions and product launches, which also acts to weaken our international competitiveness further down the line. The longer this state of affairs continues, the more we lose by it, even if these effects aren’t apparent in the here and now.”

The IoD observed business leaders nevertheless remained relatively upbeat about the prospects for their own firms.

Source: Herald Scotland

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How Brexit could hit your savings in 2019

If you’ve been sensible enough to squirrel away some money into savings, be it for a deposit on your first home, some side cash for a rainy day or, most sensibly of all, a pension, you’re probably thinking and fretting about Brexit.

What will happen when Britain formally leaves the European Union in March 2019 is still unclear. There is no obvious path forward as opinion on what to do next is so divided.

Will there be a second referendum? Will prime minister Theresa May’s deal ever get through parliament? Will the country crash out with no deal? And what will it all mean for the money I’ve so prudently set aside?

First, let’s think about the Bank of England’s base rate, which is currently set at 0.75%. In the event of a chaotic no-deal scenario, a run on the pound is likely. To protect sterling and fend off inflation, the Bank of England would probably hike rates sharply.

However, if there is no shock, perhaps because of some transitional arrangement or a poor deal, the Bank of England may cut interest rates again to stimulate the economy in the event of a slowdown, continuing the years-long pinch on savers.

As the Bank of England put it in its November 2018 Inflation Report: “The Monetary Policy Committee judges that the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”

What if you have savings linked to investments in stocks and shares? Well if Brexit does go badly, the stock market will suffer badly, at least in the short term.

The firms exposed most of all to Brexit – those which do a large amount of business in the EU, such as banks – will probably take a big hit.

Much of that hit may well be priced in before the formal Brexit takes place if it is clear there will be no deal, though shares would likely fall further.

On the other hand, if Brexit goes smoothly – a decent deal, for example, that keeps goods, services, and capital flowing freely between Britain and the EU – that could be a boon to the markets, sending share prices up as investors regain confidence.

Another risk is sterling. Should the value of the pound crash after Brexit, and it is already low in anticipation of it, those relying on savings and living outside of Britain will see their incomes fall.

If you are a British pensioner living in Spain, for example, receiving your sterling-denominated pension each month, it will exchange into fewer euros.

Then there are bonds. A lot of pensions and savings accounts are invested in UK government bonds, known as gilts.

Should Brexit get messy, the value of existing UK sovereign debt will fall as gilts become less attractive in correlation with a higher risk of default by the government.

So if you hold any gilts, the value of your savings would fall too should a hard Brexit take its toll.

If Brexit goes really badly, some financial institutions could even close their doors, just like in the 2007-8 financial crisis. That is a major risk to any savings you have deposited.

Under the UK’s Financial Services Compensation Scheme (FSCS), consumer deposits are protected up to a cap of £85,000 per person, so all is not necessarily lost. But amounts over that will be a struggle to claw back.

However, the compensation scheme does protect 100% of a set retirement income, such as an annuity, in the event a financial institution fails. It also protects 100% of the value of life insurance policies that have a savings element to them.

Another risk to your savings from a bad Brexit that triggers an economic slowdown is a tax-hungry government. Savings and pensions are pots of gold to the Treasury – and the chancellor may come raiding if revenues slide after Brexit.

It is going to be a bumpy few months. If you have serious concerns, speak to a financial advisor who will be able to guide you through all of the risks and options available to you.

Source: Yahoo Finance UK