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UK consumer spending growth slows under Brexit uncertainty

UK consumer spending slowed in October, a new report has shown, as Brits remained cautious with their money in the run-up to the missed 31 October Brexit deadline.

Spending at the shops grew by 1.5 per cent in October year on year, down from growth of 1.6 per cent in September, the latest data from payments provider Barclaycard showed today.

Consumer spending has kept the UK economy on its feet in 2019, as investment and trade have suffered under Brexit uncertainty. Yet there are growing signs that politics is taking its toll on sentiment.

Barclaycard director Esme Harwood said: “Ongoing economic uncertainty combined with a bleak start to autumn led many Brits to stay in rather than spend out last month, choosing takeaways and evenings at home over socialising at bars or restaurants.”

Non-essential spending picked up slightly to two per cent in October. The wet weather kept people inside, however, leading them to spend 6.9 per cent more on fast food and takeaways than a year earlier.

The entertainment sub-sector suffered, with consumers spending three per cent less on things such as concert and theatre tickets.

Retailers could be in for a challenging Christmas as just 47 per cent of people are confident that they will be able to spend as much as they normally do on festivities, Barclaycard said.

One area that has done well in recent months is discount stores. Spending at shops such as Aldi grew by 7.7 per cent in October, and 61 per cent of people surveyed by Barclaycard said they were seeking value for money from purchases.

Harwood said: “It’s likely we’ll see consumers continue to seek out value – whether that’s through buying more in discount stores or snapping up bargains in the Black Friday sales.”

Overall consumer confidence remained low in October. Just three in ten Brits feel positive about the state of the UK economy, with only a quarter of 34 to 54-year-olds upbeat about the situation.

By Harry Robertson

Source: City AM

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Brexit uncertainty has cost smaller firms over £1m, study suggests

Uncertainty over Brexit has cost smaller firms over £1 million each in lost revenue and turnover in the past three years, new research suggests.

Only a third of 1,000 small to medium-sized enterprises (SMEs) surveyed by distribution company CitySprint said they had seen the Government’s Get Ready For Brexit advertising campaign.

One in five said they had not seen or accessed any Government guidance or support since 2016, raising questions about how well prepared smaller businesses are, according to the report.

Almost half of those polled said they do not believe the Government has done enough to help businesses prepare for Brexit.

Despite the findings, half of SMEs said they felt more confident than they did 12 months ago, and were looking to expand their customer base across the UK in the next year

Rosie Bailey of CitySprint, said: “SMEs sit right at the heart of our economy. While it’s great to see that they feel upbeat and resilient, thanks to many years spent flexing their business to suit the times, it’s clear that they also need some extra support to help navigate the specific complexities of Brexit.

“With time running out, business owners should take immediate steps to seek out the information they need to understand the potential impact of Brexit in whatever form it takes and put clear plans in place to help their organisation mitigate these.”

By Alan Jones

Source: Yahoo Finance UK

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How much smaller UK economy is likely to be with Boris Johnson Brexit deal

THE UK economy would be 3.5 per cent smaller in the long term under Boris Johnson’s Brexit deal, compared with continuing European Union membership, a leading independent think-tank is warning.

The National Institute of Economic and Social Research says it would not expect UK economic activity to be boosted by approval of Mr Johnson’s deal, which involves leaving the single market.

In its latest forecast, published today, the think-tank says the UK outlook is “clouded by significant economic and political uncertainty and depends critically on the United Kingdom’s trading relationships after Brexit”.

The NIESR adds: “We would not expect economic activity to be boosted by the approval of the Government’s proposed Brexit deal. We estimate that, in the long run, the economy would be 3.5% smaller with the deal compared to continued EU membership.”

The think-tank forecasts, on the assumption that chronic uncertainty persists but the terms of EU trade remain unchanged, that growth will be less than 1.5% in 2019 and 2020, although it notes this prediction is “subject to significant uncertainty”.

It says risks to growth continue to be weighted to the downside, although not as much as in its previous forecast “given the reduced likelihood of a no-deal Brexit”.

The NIESR now judges there is a 15% probability of UK economic output falling in 2020, “also reflecting the risk of a more severe global slowdown”.

The think-tank noted the UK economy was estimated to be 2.5% smaller now than it would have been otherwise, as a result of the 2016 Brexit vote.

By Ian McConnell

Source: Herald Scotland

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UK’s new Brexit deal worse than continued uncertainty – NIESR

Prime Minister Boris Johnson’s Brexit deal would hurt Britain’s economy more than further delays and continued uncertainty about leaving the European Union, a think tank said on Wednesday.

Late on Tuesday, Johnson won parliament’s support for an election in early December that he hopes will break the Brexit deadlock and lead to the approval of the deal he clinched with Brussels earlier this month.

Johnson has said his deal is the only solution to the uncertainty that has weighed on the economy since the 2016 referendum.

By contrast, the opposition Labour Party wants to negotiate a new deal and put it to a second referendum, which could overturn 2016’s result.

Johnson’s Brexit plan opens the door to much looser economic ties between Britain and the EU.

The National Institute of Economic and Social Research (NIESR) said that the economic cost of a more distant relationship would outweigh the gains from ending Brexit uncertainty.

“We don’t expect there to be a ‘deal dividend’ at all,” NIESR economist Arno Hantzsche said. “A deal would reduce the risk of a disorderly Brexit outcome but eliminate the possibility of a closer economic relationship.”

Unlike his predecessor Theresa May’s deal, Johnson’s does not require England, Scotland and Wales to stay in a customs union with the EU in the future, making tariffs and other barriers likely after a transition period.

NIESR estimated that in 10 years’ time, Britain’s economy would be 3.5% smaller under Johnson’s plan than if it stayed in the EU – roughly equivalent to losing the economic output of Wales.

In a scenario of ongoing uncertainty similar to now – where Britain keeps the economic benefit of unrestricted access to EU markets but without any long-term guarantees – the economy would be 2% smaller, it forecast.

May’s deal would have limited the damage to 3.0%, while a no-deal Brexit would make the economy 5.6% smaller than if it stayed in the bloc, NIESR said.

Earlier this month another academic think tank, UK in a Changing Europe, estimated Johnson’s deal would make Britain more than 6% poorer per head.

In the nearer term, NIESR said the Bank of England should cut interest rates to 0.5% from 0.75% at a meeting next week, but said it did not expect the BoE to act until March, when Governor Mark Carney’s successor is due to be in place.

The BoE has been an outlier among major central banks in not loosening policy as the global economy slows.

NIESR said inflation was likely to undershoot the BoE’s target, especially if sterling rallied on the basis of a reduced risk of no-deal Brexit.

The think-tank forecast Britain’s economy would grow 1.4% this year and next, assuming no major short-term change to Britain’s relationship with the EU, down from 1.6% in 2018 and well below its long-run average.

By David Milliken

Source: Yahoo Finance UK

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Pound lower against dollar after call for UK election

The British pound fell against the U.S. dollar on Thursday following Prime Minister Boris Johnson’s call for a national election.

Johnson said he was asking parliament to approve a national election on Dec. 12 in an effort to break the political deadlock over Brexit and ensure the UK leaves the European Union.

The added uncertainty brought on by an election may hurt the pound GBP= in the near term. It was last down 0.47% at $1.285 and 1.43% lower this week. Having surged to a 5-1/2 month high on Monday, sterling fell on Tuesday after British lawmakers blocked Johnson’s plan to push through a withdrawal agreement and get the UK out of the EU on Oct. 31.

“Is the election positive for GBP? I argue no. The campaign will see polling swings, and investor inflows may slow whilst they wait for the result. It’s why we are long EUR/GBP,” Nomura analysts told clients.

With the Brexit end game more uncertain than traders thought last week, the pound was set up for another rocky period. Against the euro it dropped 0.26% to 86.38 pence per euro EURGBP=.

However, the pound has risen nearly 5% in October as the chances of a no-deal exit have been all but eliminated. It was against that backdrop the pound retraced some of its initial losses after Johnson announced his third attempt to force a snap poll.

The dollar index benefited from the move in sterling, last up 0.16% against a basket of rival currencies at 97.65 .DXY.

The euro was 0.21% lower at $1.111, though it had already sunk against the dollar prior to Johnson’s announcement. Despite some optimism from Mario Draghi’s final news conference as president of the European Central Bank on Thursday, the euro fell, pulled down by business surveys which point to stagnating economic momentum in the euro zone.

“We came into the morning thinking that there would be a bit more optimism than usual from Draghi as it is his last meeting, and we didn’t think he would want to end his tenure on a downbeat note,” said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group.

“We detected some optimism towards the end of the press conference which is why the euro rallied at around 9 a.m. ET. And then it sold off. There was no news in the pipeline to help it stay up.”

Reporting by Kate Duguid

Source: UK Reuters

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Pound choppy as UK parliament in turmoil over Brexit deal

The pound against the US dollar (GBPUSD=X) was choppy in the first weekday trading session following an extraordinary session in UK parliament over the weekend that saw prime minister Boris Johnson’s Brexit plans in disarray.

Initially, investor sentiment remained dampened, with cable down by 0.6% and hovering around the $1.29 mark, as traders await to hear when a vote on Johnson’s Brexit deal, which was sealed with the European Union last week, will be held. However, it bounced back into positive territory around 920am UK time.

On Saturday, Members of Parliament (MP) backed a motion to further delay the process of Britain leaving the EU.

Dubbed Super Saturday, UK parliament held its first Saturday session in 37 years. Johnson tried to convince MPs to support his agreement he made with the EU and MPs debated the proposal. Johnson said in a speech “now is the time to get this thing done,” adding that delaying past the Brexit deadline of 31 October would be “corrosive.”

Johnson’s cabinet threatened to postpone a vote on a revised deal if politicians voted to drag out Britain’s exit from the 27-nation bloc, again. However, MPs voted 322 to 306 to back a motion designed to rule out a no-deal exit — which is what will happen if politicians do not agree to Johnson’s new deal with the EU. It was tabled by independent MP Sir Oliver Letwin, which “withholds approval” for Johnson’s Brexit deal until legislation implementing it has been passed.

Subsequently, Johnson was obliged to go to the EU and ask for an extension beyond the 31 October deadline — the second extension in under a year.

Johnson said at the time that he will press on “undaunted” with his Brexit strategy while the EU said it was up to the UK to “inform it of the next steps.” MPs signalled that a vote on Johnson’s revised Brexit agreement could now take place on today — however, this is up to the Speaker of the House of Commons.

However, Johnson caused greater ructions among parliament after he sent three letters to the EU:

  • An unsigned photocopy of the request for an extension as outlined by the Benn Act and in which he is obliged to give
  • Another note from the UK’s ambassador to the EU explaining why
  • A personal, signed letter from Johnson on why he doesn’t want a delay (which is inline with that he has repeatedly said since he became prime minister. He has even said, he would rather be “dead in a ditch” than delay Brexit).

Johnson is now under scrutiny from the law as judges are set to decide whether the unsigned letter sent by Johnson complied with the Benn Act or if the prime minister is in contempt of court. Meanwhile he said parliament must be given “a straight up-and-down vote” on the prime minister’s Brexit deal

“We cannot allow parliament’s letter to lead to parliament’s delay,” he said.

It is now up to Speaker of the House of Commons John Bercow to grant a vote on Johnson’s Brexit deal in parliament.

By Lianna Brinded

Source: Yahoo Finance UK

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How new Brexit deal could hit UK economy, wages and public spending

UK trade with Europe could plummet by 25% under the kind of EU free trade deal planned by Boris Johnson, according to the British government’s own figures.

New trade barriers could wipe 4.9% off long-term economic growth, leave real wages 6.4% lower and see borrowing soar by at least £72bn just to maintain spending than if Britain remained in the EU.

Analysis by Yahoo Finance UK of official forecasts released last year suggests the UK prime minister’s Brexit proposals could also leave the UK worse off than under his predecessor Theresa May’s plans.

The government is under pressure from backbench MPs to confirm the figures are a valid reflection of Johnson’s proposals, or to swiftly update them before parliament votes on Saturday.

The figures predict greater freedom in striking trade deals outside Europe, one of Johnson’s key objectives, will add just 0.1% to growth over the next 15 years.

It indicates the benefits of such trade deals are likely to be far outweighed by the damage from tougher terms of trade between Britain and Europe in years to come.

The sectors hit hardest by a Johnson-style free trade deal

The negative impact is envisaged across many sectors of the economy and every region of the UK, with the north-east expected to be hit hardest.

Manufacturing, particularly pharmaceutical and car exports, could be battered the hardest, with the sector’s ‘gross value added’ (GVA) predicted to be 8% lower than if current trade rules continued.

The agri-food industry and financial services could take a 7% hit to GVA, while the UK’s dominant services sector could contribute 5% less to national growth.

The economic harm largely reflects increased barriers to business between Britain and EU countries, such as increased paperwork, checks and costs to ensure goods or services meet EU or UK standards, customs rules.

A key difference with former prime minister Theresa May’s plans is the likelihood of new ‘rules of origin’ checks, forcing companies to prove where products and their parts have come from to avoid extra taxes.

“Higher trade barriers between countries would be expected to raise the cost of exports and imports and incentivise a focus on the domestic market,” officials noted.

But the report still said the economy would continue to grow in the long run under any Brexit scenario including a no-deal outcome.

Government under pressure to reveal latest Brexit analysis

The figures were included in the ‘EU Exit: long-term economic analysis’ briefing published under May’s government in November last year.

They estimate what the impact would be of a “hypothetical free trade agreement (FTA),” reflecting average FTA non-tariff costs such as being outside the EU customs union, regulatory barriers and other changes.

While May’s deal with Brussels pledged “as close as possible” trade terms with the EU on goods, Johnson pledged a looser “free trade agreement.”

A leading backbench MP wrote to the UK chancellor Sajid Javid on Friday urging him to confirm whether Johnson’s deal could therefore be fairly compared to the “hypothetical FTA” outlined in the earlier Brexit assessment.

Catherine McKinnell, a Labour MP and chair of the Treasury select committee, called on officials to immediately update the assessment if the Treasury no longer stood by the analysis ahead of parliament’s crunch vote this weekend.

She said the committee had asked for an update three months ago but still received no response.

Trade-offs between EU trade and deals with other countries

Simon French, chief economist at stockbroker Panmure Gordon, said revised estimates would be unlikely to significantly change the headline figure on its negative impact on GDP, saying it would still be “in the ballpark” of 4.9%.

But he said a fresher analysis by officials would be far more useful in revealing the likely trade-offs between a closer deal with the EU and greater “wiggle room” to secure better terms with other countries.

“We were told, and it’s right, that there are advantages to changing our regulatory system and doing trade with the rest of the world. But it comes at the cost of the depth and breadth of any FTA with Europe going forward,” he said.

“Will it allow EU fishing access to our waters in return for UK drug exports, say? What are the costs and benefits of having deep [EU] alignment or a third-country relationship?”

Talks on an EU trade deal have not even started

French said the past few years of divorce talks had revealed “almost nothing about the end state” of Britain’s future trading relationship with the EU, which will be negotiated during a post-Brexit transition period.

He also questioned Labour, other opposition parties’ and think tank warnings of a “race to the bottom” on workers’ rights, environmental standards and consumer protection under Johnson’s plans.

The IPPR think tank had said on Thursday the deal “opens the door to a decade of deregulation,” putting high regulatory standards and the NHS at risk in trade talks with US president Donald Trump’s administration.

But French said: “This deal provides the chance to take a different stance, but it doesn’t mean they will.”

He noted the EU could still insist on Britain accepting EU standards at a later date in exchange for a closer relationship.

A government spokesman said: “We will negotiate a comprehensive and ambitious FTA with the EU, which will be good for our economy and businesses.

“This stage of the negotiations has focussed on the withdrawal agreement rather than the future trade deal, the specific nature of which will be subject to the outcome of the next phase of negotiation.

“We will keep parliament updated throughout the negotiations, including providing analysis at appropriate times.”

By Tom Belger

Source: Yahoo Finance UK

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UK Inflation Continues its Downward Trend and is Unlikely to Pick Up Anytime soon

The Consumer Prices Index measure of inflation in the UK showed prices increased by 1.7% year-on-year in September, unchanged on the previous month but a shade below the market’s expectation for a more robust reading of 1.9%, as a trend of steadily declining price pressures on the UK consumer extends.

According to the ONS, the softer-than-expect inflation reading was driven by downward pressures to the costs of motor fuels, second-hand cars, and electricity, gas and other fuels.

However, increases in the cost of furniture, household appliances, hotel overnight stays, and from recreation and culture items limited the decline in the prices consumers are paying.

The data confirms a steady trend of declining cost pressures in the UK, with prices moving steadily lower from the multi-year peak of 3.1% measured in November 2017.

The movement in prices will almost certainly only add to the perception that there is little reason for the Bank of England to raise interest rates anytime soon.

Yesterday’s labour market data confirmed the jobs market is softening, and combined with the downward trend confirmed by today’s inflation data, the Bank of England could in fact see scope for an interest rate cut as being their next move.

Such an outcome would likely weigh on Sterling’s outlook, as currency’s tend to fall when their central bank signals it is about to enter a rate cutting cycle.

Of course, it it is too soon to speculate on Bank of England policy moves, as it will be heavily Brexit dependent. But, strip out Brexit and we see the pressures to raise rates that were in place at the start of 2019 have now certainly evaporated.

And, cost prices are only likely to stay lower for longer, according to economists.

“Absent hard Brexit and a significant decline in Sterling inflation are likely to keep undershooting BoE’s 2% target. Meanwhile, the decelerating global demand could act as another deflationary impulse as Chinese goods blocked by tariffs in the US are likely to make their way towards Europe. BoE is likely to stay put for a while as, considering how fragile the UK economy is at the moment, a policy mistake would be disastrous,” says Artur Baluszynski, Head of Research at Henderson Rowe.

Written by Gary Howes

Source: Pound Sterling Live

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Brexit deal hysteria sparks dramatic gains for UK stocks

London-listed companies with exposure to the domestic economy soared on Friday for their best day in nearly a decade as hopes that Britain can seal a Brexit deal triggered explosive gains and a major reversal of fortunes for the much-shunned UK market.

Investors pounced on everything from banks like RBS (RBS.L) to housebuilders and retailers such as Kingfisher (KGF.L), which owns DIY chain B&Q, after British Prime Minister Boris Johnson and his Irish counterpart, Leo Varadkar, said they had found “a pathway” to a possible Brexit deal.

The buying spree targeted some of the market’s most beaten-down stocks and those considered most vulnerable to a downturn in consumer spending if the country crashes out of the European Union without a deal.

The FTSE 250 .FTMC surged 4.2%, while the Dublin bourse .ISEQ, often considered a barometer of Brexit sentiment, jumped 3.7% to its highest since May.

Source: UK Reuters

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UK economy starts to show cracks under Brexit and global strains

UK economy is increasingly showing signs of strain as the Brexit crisis and the global slowdown intensify, with the loss of momentum appearing to spread to areas which have hitherto been sources of growth.

Confidence among businesses has ebbed to its lowest levels since the global financial crisis.

The labour market, which has long been a silver lining for the economy, is also starting to show signs of slowing, raising questions about the strength of consumer spending.

The different Brexit scenarios for the world’s fifth-largest economy make it hard to gauge the outlook for the year ahead, not least for the Bank of England, and some investors fear Britain is already flirting with recession.

Economists polled by Reuters last month put the probability of a recession within a year at 35%.

Below are some indicators of the British economy and how they have changed since the June 2016 Brexit vote.

BUSINESSES STRUGGLE
Pessimism among businesses has reached the highest levels in years.

The gauges of future activity in the Lloyds Business Barometer, CBI Growth Indicator and IHS Markit/CIPS surveys have all turned weakened recently.

The closely watched IHS Markit/CIPS survey last week showed Britain’s dominant services sector contracted unexpectedly in September — and marked the worst reading in a major developed economy.

HOUSEHOLDS STILL SPENDING

Household spending has supported Britain’s economy since the Brexit vote, although there are signs that households have spent more on non-discretionary goods such as food, while spending in restaurants and hotels has weakened.

As of the second quarter, spending on the latter was about 1.5% lower than in mid-2016, but nearly 7% higher for food and non-alcoholic drinks, according to official data.

Figures from the British Retail Consortium and payment card company Barclaycard published on Monday showed shop chains had their worst September since records started in 1995, although spending on entertainment increased.

LABOUR MARKET

The labour market is the strong point of Britain’s economy but some cracks have appeared recently. Employment fell in annualised terms in the six months to July 2019 to the greatest extent since early 2012.

Wage growth is at a decade-high although the BoE has said it may have peaked and there has been no pickup in productivity.

A measure that BoE policymakers like to look at — the three-month annualised growth rate of private sector earnings, excluding bonuses — slowed in July from an almost five-year high of 5.9% in June.

INVESTMENT

Although the Office for National Statistics has revised up the level of business investment in Britain’s economy lately, the figures still show capital expenditure has stagnated since the Brexit vote.

Business investment is running about 5 billion pounds lower than it would have been had it followed its pre-Brexit vote trend since the financial crisis, according to the latest data.

Reporting by Andy Bruce; Editing by William Schomberg

Source: UK Reuters