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UK economy dodges recession, but annual growth slowest since 2010

UK economy grew at its slowest annual pace in nearly a decade during the three months to September as the global slowdown and Brexit worries hit manufacturing and business investment, official figures showed on Monday.

While the economy dodged outright recession, the rebound in quarterly growth was smaller than expected.

Output fell in August and September – when Britain looked at risk of leaving the European Union without a transition deal.

A month before an early election, finance minister Sajid Javid hailed what he called “solid” growth figures, a view challenged by the opposition Labour Party.

“The fact that the government will be celebrating 0.1% growth in the last six months is a sign of how low their hopes and expectations for our economy are,” Labour’s top finance official John McDonnell said.

Economists said ongoing political uncertainty and a weak global backdrop could prompt the Bank of England to cut interest rates next year, even if Prime Minister Boris Johnson passes his Brexit deal before a new Jan. 31 deadline.

“Narrowly avoiding a recession is nothing to celebrate,” said Tej Parikh, economist at the Institute of Directors. “The UK economy has been in stop-start mode all year, with growth punctuated by the various Brexit deadlines.”

Annual gross domestic product growth fell to 1.0% in the third quarter from 1.3% in the April-June period, the Office for National Statistics said, its lowest since early 2010.

This was weaker than the euro zone, which grew by 1.1%.

The quarterly growth rate recovered to 0.3% after contracting 0.2% in the three months to June when businesses wrestled with an overhang of raw materials stockpiled before the original Brexit deadline in March.

But it was a weaker rebound than the 0.4% growth predicted by the BoE and private sector economists.

BOE RATE CUT?
Britain’s economy has lost momentum since the 2016 Brexit referendum, before which it typically grew more than 2% a year.

Last week the BoE nudged up its growth forecast for 2019 to 1.4% from 1.3%. This would be the same growth rate as last year and the weakest since the financial crisis. For 2020, the BoE expects a slowdown to 1.3%.

Two BoE policymakers voted to cut rates last week and others could follow if growth remains weak and uncertainty persists about the longer-term trade ties between Britain and the EU.

“The BoE forecasts an investment rebound if a Brexit deal removes no-deal risk but we think this is optimistic,” said Nancy Curtin, chief investment officer at Close Brothers.

Business investment held steady in the third quarter but dropped by 0.6% on the year, the ONS said.

Manufacturing output fell more than expected, down 0.4% on the quarter and 1.8% on the year.

Household spending, which has been more resilient than business investment, due to low unemployment and rising wages, rose by 0.4% on the quarter. Government spending grew by 0.3%.

Editing by William Schomberg and Ed Osmond

Source: UK Reuters

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Bank of England to hold rates as weak economy spurs calls to boost business investment

The Bank of England is expected to hold interest rates steady at its latest monetary policy meeting this week with debate raging among economists as to whether the UK economy is ready for another rate hike.

The Bank’s monetary policy committee (MPC) meets this week before Thursday’s midday announcement, with doubts growing over whether interest rates will rise this year amid calls today for government help to promote growth-stimulating business investment.

All eyes will be on whether the Bank continues to issue hawkish guidance, with markets pricing in a likelihood of around 55 per cent for a hike at the August meeting, according to economists at Natwest, who have abandoned their prediction of an August rise following continued weak data.

The Bank was forced to hold back from a widely expected tightening in May after the UK’s GDP growth slumped to 0.1 per cent in the first three months of the year, far below expectations. Economists will try to gauge how confident the Bank is in its predictions that the first quarter weakness was a one-off.

The Uk economy will not stage a complete bounceback, according to new forecasts to be published today by the British Chambers of Commerce (BCC). The business group will today cut its UK GDP forecast to 1.3 per cent for the whole of 2018, which would make this year the weakest since the height of the global financial crisis.

Adam Marshall, the BCC’s director general, told City A.M. the government must “do everything in its power to crowd in investment” at a time when uncertainty is causing some firms to hold back.

“A lot of small businesses are continuing to invest, but a lot of medium-sized and larger businesses have paused investment,” he said. Measures to boost business investment could include changes to the capital investment allowances used by firms or spending on improved internet connectivity.

Businesses are suffering from “Brexititis” – a mixture of uncertainty over future trade and fatigue with trying to follow the political process of leaving the EU – while craving attention for other issues, Marshall said.

The “number one priority is the people agenda”, he said, with “skills gaps at every level” causing issues for businesses.

The government has introduced the apprenticeship levy on larger firms in part to try to address the gaps in training, but problems remain with the scheme, Marshall said. Firms have had difficulties in claiming the money to train staff and cannot pass it on to firms in their supply chain, while in some areas there is a lack of training providers to whom businesses can turn.

Source: City A.M.