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UK economy set to return to growth in third quarter after coronavirus chaos

The UK economy’s coronavirus-induced downturn eased in June as key health indicators hit a four-month high, according to a closely-followed survey.

The UK’s economic output hit a measure of 47.6 on IHS Markit’s flash purchasing managers’ index (PMI), a four-month high.

Anything below 50 represents a contraction. But it was a stark improvement from May’s score of 30 after April’s lockdown saw the UK economy sink to an all-time low score of 13.8.

IHS Markit’s chief business economist, Chris Williamson, said it was a sign the UK looks set to return to growth between June and September.

“June’s PMI data add to signs that the economy looks likely return to growth in the third quarter, especially given the further planned easing of the lockdown from 4 July,” he said.

“June saw a record rise in the PMI for a second successive month,
confirming that the economy is moving closer to stabilising after the worst of the immediate economic impact from the Covid-19 pandemic was felt back in April.”

The pound was broadly flat against the dollar this morning to stand at $1.2462.

It follows earlier PMI showing the eurozone economy also hit a four-month high, led by France’s recovery.

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Manufacturers lead UK recovery

The manufacturing sector led the UK’s June recovery to post growth of 50.8. But the UK services industry slipped again, though not nearly as badly as it did in May. The industry posted a score of 47, compared with May’s 29.

The UK’s private sector also said confidence hit a four-month high in June as firms raised their expectations for the year ahead.

Easing of lockdown restrictions amid the coronavirus pandemic helped UK economic activity improve after its April collapse.

Uncertainties loom for UK economy

But industry figures told IHS Markit underlying demand remained “very subdued”, with cutbacks in spending holding back business activity.

And Williamson warned the UK economy’s longer term prospects are plagued by uncertainty.

“Demand clearly remains weak, as indicated by a further steep decline in backlogs of orders and an ongoing fall in new orders,” he said. “Many Covid-19 restrictions and social distancing measures will also need to stay in place until an effective treatment or vaccine is available, curbing demand in a variety of service sectors in particular.

“Uncertainty over recovery prospects and job prospects also mean demand for many goods, especially non-essential big-ticket items, is likely to remain weak for many months.”

Doubt over whether the UK can strike a trade deal with the EU before the Brexit transition period ends in December 2020 is also a worry for firms.

That led IHS Markit to forecast the UK economy to contract by 11.9 per cent this year before expanding by 4.9 per cent in 2021.

‘Solid start’ to UK economy’s recovery

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the June data suggests a solid rebound in GDP. But he warned gains will be harder to come by as the UK economy struggles to return to normal.

“A range of daily data are consistent with output rising significantly in June, after a sluggish start to the recovery in May,” he said.

“Nonetheless, the pick-up in activity partly reflects firms working through backlogs of work that accumulated during the peak of the pandemic. In addition, firms still are cutting headcounts rapidly.

“With restrictions to suppress Covid-19 likely to impose a hard ceiling on activity in certain sectors of the economy until a vaccine is found, and low levels of consumers’ confidence pointing to elevated saving, a full recovery in GDP in the second half of this year remains unlikely.”

Pantheon Macro stuck to its base case that GDP will stand five per cent below its pre-lockdown peak in the fourth quarter.

Thomas Pugh, Capital Economic’s UK economist, added that the pace of the UK economy’s recovery was pleasing.

“The economy seems to be recovering a little quicker from its nadir in April than we had first expected,” he said. “This trend should continue in July as bars, restaurants and cinemas will probably be able to open from 4 July and a reduction in the official social distancing measure from 2m to 1m would allow those firms that are open to serve significantly more customers. “

By Joe Curtis

Source: City AM

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UK economy grew just 0.1 per cent before coronavirus lockdown

The UK economy grew 0.1 per cent in the three months to February before the coronavirus lockdown hit businesses.

The Office for National Statistics (ONS) data showed the increase was entirely down to the services sector.

The tiny rise, which is measured on a three-month rolling basis, was a slight improvement on the three months to January, when there was no growth.

In February GDP contracted 0.1 per cent, a lacklustre start to the year after the optimism that followed Boris Johnson’s resounding victory at the polls in December.

Thee coronavirus outbreak was already beginning to impact certain sectors of the economy at this stage, the ONS data showed. Travel agencies and manufacturers of transport equipment were the earliest firms to suffer.

A steep drop in the manufacture of transport equipment due to a fall in exports to China as a result of coronavirus was behind the overall weak performance.

Energy production, mining and quarrying all fell.

Growth in the services sector, which increased 0.2 per cent, was enough to push GDP forwards despite contraction in both production and construction.

Production showed the highest fall, dropping 0.6 per cent, while construction slipped 0.2 per cent before the coronavirus lockdown.

The fall in production marked the 10th consecutive three-month decline for the sector.

‘Worse to come’ for UK economy

The impact of the coronavirus lockdown, which has hit almost all shops and businesses, is yet to be seen. But accountant EY said the UK could see contraction of as much as five per cent in March.

This would result in an economic contraction of 1.3 per cent for the first quarter. EY predicted that will grow to an enormous 13 per cent contraction in the second quarter.

The decline will be led by a 14 per cent fall in consumer spending, EY said. A lack of consumer confidence and the closure of pubs and restaurants will underpin this plunge.

For the year as a whole, EY is predicting a contraction of 6.8 per cent. However, that is presuming the coronavirus lockdown is relaxed in the second quarter.

UK can start recovery from coronavirus lockdown in June

Howard Archer, EY’s chief economic adviser, said: “There is no denying that there are substantial downside risks. [But] we believe the economy can start to recover in the third quarter and then see decent activity late on in 2020 and during 2021.

“This is on the assumption that coronavirus peaks during Q2 2020 and the government starts to relax some of the restrictions on people’s movements and on business activity late on in the quarter and further loosens them during Q3.

“However, the government warned at the end of March that normal life in the UK may not return for up to six months”.

By Edward Thicknesse

Source: City AM

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UK economy registers zero growth in final quarter of 2019

The UK economy flat-lined in the final quarter of 2019, data has shown, as political uncertainty driven by Brexit and the December General Election weighed on activity.

Britain’s services sector – which makes up about 80 per cent of the economy – eked out growth of 0.1 per cent, while manufacturing production slumped 1.1 per cent quarter on quarter, the Office for National Statistics (ONS) said.

The ONS said the UK economy grew 1.4 per cent in 2019 as a whole, bettering 2018’s growth of 1.3 per cent. Over the last year, services grew 1.8 per cent but production fell 1.3 per cent in a tough year for UK manufacturers amid repeatedly delayed Brexit deadlines.

“The underlying picture for production was one of weakening throughout 2019, with nine months of the year showing negative rolling three-month growths,” the ONS said.

However, analysts are looking towards January data to give a more accurate sense of where the economy is headed, given that business sentiment and survey indicators have picked up markedly since Boris Johnson’s landslide December election win.

Firms are grateful for at least some clarity over Brexit, which officially happened at the end of last month. Expectations of an economic pick-up led the Bank of England to hold interest rates at 0.75 per cent at its last meeting.

In December, UK GDP grew by more than expected, registering a 0.3 per cent month on month expansion. This beat expectations of 0.2 per cent growth and the 0.3 per cent contraction seen in November.

The pound climbed after the data was released to stand 0.4 per cent higher against the dollar by 9.45am at $1.294.

Ruth Gregory, senior UK economist at consultancy Capital Economics, said: “While the first estimate of fourth-quarter GDP showed that the economy stagnated at the end of last year, the fourth quarter will probably prove to be the low point.”

“The expenditure breakdown painted a pretty downbeat picture, showing that business investment and net trade drove the drop in GDP, subtracting 0.1 percentage points and 0.3 percentage points respectively.”

Uncertainty remains

The weak UK GDP reading came ahead of chancellor Sajid Javid’s 11 March Budget, which will set the tone for the new Conservative administration which has pledged to boost spending.

Tej Parikh, chief economist at the Institute of Directors, said: “The UK economy ended 2019 in a funk, and despite a recent rise in optimism, businesses will be looking for a significant boost from the chancellor next month.”

Britain has entered the next phase of Brexit negotiations, and has until the end of the year to reach a “deep free-trade agreement” with the European Union. Many businesses are concerned that the tight deadline could result in the UK falling into an effective no-deal Brexit.

“This makes the Budget a crucial moment to get the economy moving,” Parikh said. “The chancellor must clear the way for entrepreneurs to create jobs and drive up productivity, by unleashing investment in start-ups, slashing business rates, and revamping our skills system.”

Other uncertainties also linger over the economy. In a worrying sign for policymakers, UK household spending, which drove growth in 2019 as unemployment plumbed record depths, slumped to a four-year low.

Chris Towner, director at risk adviser Chatham Financial, said: “The question now for the first quarter of 2020 is whether we are going to witness a bounce in activity as a reaction to the healthy majority for the more business-friendly Conservative party. Early shoots of a bounce are starting to appear.”

By Harry Robertson

Source: City AM

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Scotland returns to growth despite impact of Brexit woe

THE Scottish economy returned to growth in the third quarter, matching UK-wide expansion of 0.3 per cent, official figures show.

Business services and finance was a key driver of growth during the three months to September, according to the data published yesterday by the Scottish Government, but manufacturing contracted by 0.2% and construction output was flat.

The Scottish economy had contracted by 0.2% in the second quarter, matching the UK-wide performance in that period, having expanded by 0.5% during the opening three months of this year.

Comparing the year to September with the preceding 12 months, Scottish gross domestic product grew only 1%.

The dampening impact of Brexit-related uncertainty on economic growth in Scotland and the rest of the UK has been highlighted in a raft of surveys, and by economists.

CBI Scotland director Tracy Black said: “While it’s good to see that Scottish GDP growth recovered following a contraction in the second quarter, underlying momentum remains weak.”

Andrew McRae, the Federation of Small Businesses’ Scotland policy chair, highlighted the resilience of consumers and firms amid weak confidence, cost increases and political turmoil.

He said: “It’d be easy to dismiss these uninspiring growth figures, but they show that many people and firms have been getting on with business despite shaky confidence, rising overheads and political upheaval.”

In spite of manufacturing weakness, the broader Scottish production sector achieved a 0.9% quarter-on-quarter rise in output in the three months to September on the back of a 5.9% jump in electricity and gas supply. The services sector in Scotland grew by 0.2% quarter-on-quarter in the three months to September.

Comparing the third quarter with the same period of 2018, Scottish GDP was up 0.7%. This was adrift of a corresponding rise of 1% for the UK as a whole.

Scottish manufacturing output in the third quarter was down by 0.8% on the same period of last year. UK manufacturing output was flat quarter-on-quarter in the three months to September. However, third-quarter UK manufacturing output was down by 1.4% on the same period of last year.

Mr McRae called for politicians at Holyrood and Westminster to pay heed to the needs of smaller businesses.

He said: ”If in 2020 we want smaller firms to drive stronger local growth, MPs and MSPs must find time to think about their needs. Across the UK, we must see a new drive to end the late-payment crisis. And at Holyrood, we must see MSPs dismiss a half-baked effort to hand councils sweeping new tax powers.”

The FSB noted yesterday that earlier this year at the Scottish Parliament’s local government committee, opposition MSPs had united to force through a stage-two amendment to the Non-Domestic Rates (Scotland) Bill that it observed “could see councils take full control of the Scottish rates system and may end Scotland-wide small business rate relief”.

Scottish Finance Secretary Derek Mackay said: “While it is good news the economy has grown in the last quarter, it is unsurprising the overall pace of growth has slowed as a result of the continued uncertainty around Brexit.”

Sterling has come under pressure this week, with Prime Minister Boris Johnson spooking markets with proposed legislation to prevent extension of the Brexit transition period beyond the end of next year.

The pound was, at 5pm in London yesterday, trading around $1.3076, down nearly 0.4 cents on its previous close. It had tumbled by more than two cents on Tuesday, and is now below levels at which it was trading last Thursday as voters went to the polls.

Sterling had spiked above $1.35 in the wake of an exit poll published immediately after the polls closed at 10pm, which showed a clear Conservative majority.

Mr Mackay said: “Brexit remains the biggest threat to our economy. Just this week the Prime Minister has put the risk of a ‘no-deal’ Brexit back on the table by ruling out any extension to the transition period. This would be catastrophic for Scotland’s economy. Scotland did not vote for Brexit and the people of Scotland have the right to determine their own future free from Brexit as an independent member of the European Union.”

By Ian McConnell

Source: Herald Scotland

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Top ten cities in UK for economic growth led by Edinburgh

According to the 2019 Vitality Index by Lambert Smith Hampton, Edinburgh is the city with the best prospects for UK economic growth, with Cambridge and Manchester coming in second and third place, despite the UK’s uncertain economic and political environment. Compiled every year, The Vitality Index claims to provide a comprehensive assessment of the health of UK towns and cities, considering education, entrepreneurialism, affluence, productivity, growth and environmental factors.

By identifying the best destinations to support future economic growth and provide opportunities for business expansion, the top ten rankings for 2019 are as follows:

  1. Edinburgh
  2. Cambridge
  3. Manchester
  4. Brighton & Hove
  5. Oxford
  6. Bristol
  7. Reading
  8. Guildford
  9. Cardiff
  10. Colchester

Climbing from 2018 position number five, Edinburgh has risen to the top of the ranking, knocking Cambridge off the top spot for the first time since 2016. The city has seen one of the highest rates of house price growth of any location, alongside strong wage growth. The only Scottish location in the top 10, Edinburgh has a highly qualified population and is forecast to see one of the strongest rates of job growth over the next five years.

Edinburgh has a highly qualified population and is forecast to see one of the strongest rates of job growth over the next five years

Followed by Cambridge at second place, the city has retained its first place as the most highly educated, being home to the UK’s top-ranked university and one of the highest proportions of residents qualified to a degree level or above.

Manchester remains in position number three and is the sole Northern location to rank within the top ten, seeing strong growth in both population and commercial property rents. As one of the fastest-growing locations, the city has shown a robust GVA growth in the UK as well being one of the most entrepreneurial cities of the year.

The South East region currently dominate with four locations featuring in the top ten. Brighton comes in fourth place, holding the top spot for growth in commercial property rents. While Oxford and Guildford both fell slightly in the ranking from last year, they remain in the top 10 with Oxford showing the fastest rate of workforce job growth forecast over the next five years. Elsewhere, Reading takes seventh position, having seen a substantial improvement in wage growth.

Although still dominated by the South East of England, the Welsh capital Cardiff feature in the top ten for the first time, at position number nine, due to increasing house prices and strong job growth. The city has been forecast to see job growth of 6% over the next five years, the strongest of all the locations.

Colchester also featured in the Index’s top ten for the first time, due to its rates of job growth and the city’s ambitious growth plans, which include a £3bn transformation project. The Essex town is forecast to see one of the fastest rates of job growth over the next five years and has recently witnessed sizeable increase in commercial property rents.

By Freddie Steele

Source: Workplace Insight

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Sluggish economic growth to continue as demand for lending falls

The UK economy’s sluggish growth shows no signs of letting up, with all three major lending classes set to grow less than two per cent this year, new figures have revealed.

Despite an uptick in real incomes, demand for consumer credit is forecast to grow just 1.6 per cent this year and two per cent in 2020, the lowest rate of growth since 2013, according to the EY Item Club.

Mortgage lending will also remain stagnant, rising less than one per cent, as consumer confidence and a lack of supply continues to hit the property market.

Meanwhile, continued uncertainty around Brexit means business lending is expected to grow only 1.3 per cent this year, as businesses hit pause on major investment plans.

The sluggish forecast across lending classes is a best-case scenario based on a Brexit deal being reached by 31 October. Growth would be even lower if the UK were to crash out of the EU without a deal, according to EY.

“The weak economic outlook continues to hold back demand for lending,” said Omar Ali, EY’s UK financial services managing partner.

“It’s been a similar story for over a decade now and there’s little improvement in sight. Since the financial crisis, the expectation was that the economy would return to higher growth after a short period of sluggishness – this has never materialised and is not forecast to happen any time soon.”

It comes amid a slowdown in growth across the wider UK economy, which grew 1.4 per cent last year, its slowest rate since 2009. GDP growth is forecast for just 1.3 per cent this year, rising marginally to 1.5 per cent in 2020.

By James Warrington

Source: City AM

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UK economy grows faster than expected

The UK economy grew by 0.3 per cent in the three months to the end of February, a faster than expected rate.

Economists had expected growth of 0.2 per cent for the quarter, and zero per cent for February, instead the economy grew by 0.2 per cent in February.

Samuel Tombs, economist at Pantheon Macroeconomics, said the reason economists were too pessimistic is that data from the purchasing managers index (PMI) was very negative in February, but such indicators tend to be overly pessimistic at times of political uncertainty.

The Office for National Statistics (ONS), which compiled the figures, stated an element of the economic growth came from stockpiling, particularly in the construction industry, ahead of the UK’s expected exit from the EU.

Ulas Akincilar, head of trading at Infinox, noted that UK economic growth continues to be driven by the performance of the services sector of the economy, with the manufacturing and construction sectors continuing to perform poorly.

Yael Selfin, chief economist at KPMG, said the pace of economic growth slowed between January, when it was 0.5 per cent, and February, when it was 0.2 per cent, and such erratic economic performance does not bode well for the performance of the economy in the future.

Ms Selfin added that a prolonged delay to the Brexit process is likely to damage the potential growth rate of the economy for years to come.

By David Thorpe

Source: FT Adviser

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Scotland has second-highest growth in UK, analysis suggests

Scotland’s economy grew by 1.7% in 2018, according to academic estimates, compared with the UK average of 1.4%.

Scotland’s economic growth in 2018 was the second-highest of any UK region, with only London growing more, according to academic estimates.

Although the UK’s economy grew by just 1.4% in 2018 – its lowest rate in six years – Scotland’s economic growth of 1.7% meant it bucked the national tend, new estimates show.

Regional estimates, by academics at the Economic Statistics Centre of Excellence, suggest Scottish growth was up from 1.6% on 2017, while average UK growth fell from 1.8% in the previous year.

SNP MSP Gordon Macdonald welcomed the figures and said: “This analysis shows that the fundamentals of the Scottish economy are strong.

With economic growth rising in Scotland and falling elsewhere across the UK, Tory claims that Scotland is somehow uncompetitive have been thoroughly debunked

Gordon Macdonald MSP

“With economic growth rising in Scotland and falling elsewhere across the UK, Tory claims that Scotland is somehow uncompetitive have been thoroughly debunked.

“But Brexit continues to be an enormous threat to jobs and businesses across Scotland – and the public will be concerned at the complete lack of clarity this close to leaving the EU.

“The SNP in government are offering stability and certainty through our budget which supports jobs and businesses.

“The UK Government must do the same by ruling out a no-deal Brexit that would be economically disastrous.”

London continues to far outperform the rest of the UK, with estimated growth of 2.9% in 2018.

In addition to Scotland, the North West, South West and East Midlands saw growth estimates for 2018 slightly higher than the UK as a whole.

Substantially behind the UK average were Wales, Northern Ireland and the East of England.

Source: Express and Star

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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 risks severe damage without orderly Brexit – CBI

Britain will struggle to achieve even modest economic growth next year unless the government secures an orderly Brexit in March, the Confederation of British Industry said on Thursday.

The CBI said the world’s fifth-largest economy would grow by 1.3 percent in 2018, 1.4 percent in 2019 and 1.6 percent in 2020, little changed from its previous projections in June.

The forecasts were slightly weaker than those of the Bank of England.

The CBI said it was assuming that Prime Minister Theresa May wins backing in parliament for her preferred plan for leaving the European Union, something which looks unlikely at a vote due on Dec. 11.

“A no-deal scenario would blow these figures out of the water,” the CBI’s director-general, Carolyn Fairbairn, said, reiterating her organisation’s support for May’s plan.

Last week, the BoE warned that a worst-case Brexit could deal a bigger blow to Britain than the 2008 financial crisis, shrinking the economy by as much as 8 percent in a year.

Economists at U.S. bank J.P. Morgan said on Wednesday the odds of Britain staying in the EU had risen to 40 percent from 20 percent, following parliamentary setbacks for May and the likelihood that the European Court of Justice will rule that Britain could unilaterally revoke its EU departure notice.

Before the 2016 referendum, the CBI argued that staying in the EU would be best for Britain’s economy.

Whilst the CBI expects real wage growth to recover partially, it predicts living standards will not rise much, due to Britain’s failure to tackle persistently weak productivity.

“Brexit has sucked the oxygen from the domestic agenda,” Fairbairn said.

Source: UK Reuters