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Businesses expect UK economy to slow further in 2020

Businesses expect UK economic growth to slow further next year as the US-China trade war and Brexit uncertainty continue to weigh on industry.

The Confederation of British Industry (CBI), which represents 190,000 businesses, said on Monday it expects UK GDP to grow by just 1.2% in 2020, down from the expected 1.3% growth rate this year.

The CBI blamed Brexit for the weak economic picture, along with the US-China trade war which is hurting global growth rates.

“Should these dual headwinds subside, we expect a gradual pick-up in activity,” said Rain Newton-Smith, CBI’s chief economist.

“But the bigger picture is one of fairly modest growth over the next couple of years – growth that should be far better, given the UK’s relative strengths.”

The CBI’s weak forecast is in fact based on a best case scenario for Brexit that sees the UK leave the EU on 31 January and make smooth progress negotiating an “ambitious” trade deal with the EU that allows frictionless trade. If reality falls short of these expectations, the CBI expects GDP to grow by just 1% in 2020.

“Transforming a lost decade of productivity will only be possible if supported by a good Brexit deal – one that keeps the UK aligned with EU rules where essential for frictionless trade along with protecting the UK’s world-beating services sector, which accounts for 80% of our economy,” Newton-Smith said.

The CBI said consumer spending would continue to account for the lion’s share of growth, but government spending would also provide a growing boost thanks to major spending pledges from both main parties. Business investment is forecast to essentially flatline.

Separately, Make UK, the manufacturers lobbying group, on Monday downgraded growth forecasts for growth in its sector. Make UK and accountants BDO forecast manufacturing growth of just 0.3% in 2020, down from an earlier forecast of 0.6%. However, this would represent a pick-up on the 0.1% growth expected in 2019.

By Oscar Williams-Grut

Source: Yahoo Finance UK

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South West to outpace UK economy next year – but growth will be slower than average

The South West will be among the UK’s fastest-growing regions next year, according to new research by global accountancy group PwC – although the rate of 1.2% will be significantly below its long-term average rate of around 2%.

PwC’s latest UK Economic Outlook forecasts that the UK economy will achieve growth of 1.1% next year against 1.2% this year.

The South West’s slightly better performance puts it alongside the South East and Scotland in terms of regions performing at or above the UK average.

PwC forecasts that all 12 UK regions will achieve modest but growth in 2019 and 2020.

According to the report, economic growth has slowed over the past two years primarily due to a dampening of business investment, resulting from both a lack of clarity over Brexit as well as heightened global trade tensions.

Although consumer spending has continued to drive the UK economy, supported by recent rises in real incomes, a cooling housing market coupled with slower jobs growth means there is likely to be only moderate consumer spending growth of around 1.2% in 2019 and 1.4% in 2020.

PwC West and Wales regional leader John-Paul Barker, pictured, said: “It’s good to see that the South West is projected to be among the top performers among the UK regions, but the differences between how it is expected to perform versus the UK average growth rate are small.

“But it’s not just the financial performance of a region that’s interesting to highlight. Swindon, Bristol and Plymouth are all performing strongly in our latest Good Growth for Cities Index so it’s encouraging to see the South West delivering on a number of fronts.”

PwC chief economist John Hawksworth added: “UK economic growth is likely to remain choppy throughout the rest of this year and in early 2020. However, there could be a modest bounce in business investment later in 2020 if the UK achieves an orderly Brexit, but the uncertain global economic outlook could hold back a stronger recovery in investment next year.

“Any potential weakness in private sector spending in 2020 should be offset at least in part by stronger trends in government spending. Both major political parties have shifted away from austerity, which is likely to support growth in 2020, irrespective of the outcome of the forthcoming general election. But this will also leave a bigger budget deficit to deal with in the longer term.”

The UK Economic Outlook forecasts that most industry sectors can expect relatively modest growth in 2019-20, though short-term trends remain dependent on how events develop around Brexit.

The distribution, hotels and restaurants sector remained strong in the first half of 2019, but a slowdown is expected next year, whereas the weakened business services and finance sector could enjoy a modest recovery in 2020 assuming an orderly Brexit can be achieved.

The manufacturing and construction sectors have experienced considerable volatility in recent years and are unlikely to see sustained recovery until there is clarity on both Brexit and the global trade outlook.

The report says that while inflation has fallen back below the Bank of England’s 2% target in recent months, real earnings have started to grow again at a relatively strong pace.

Although this upward trend is expected to continue into 2020, it would be difficult for strong real wage growth to be sustained on a longer-term basis unless productivity also picks up.

By Robert Buckland

Source: Swindon Business

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Labour’s manifesto could break the fabric of the UK economy

Labour’s manifesto would completely break the fabric of Britain’s liberal and tolerant free market economy, replacing it with a command and control centralising experiment that would do untold damage to the very people Labour claim to support.

Let’s be clear; this is not a normal Labour manifesto. This Labour manifesto would uproot society to the detriment of rich and poor.

Labour is right about one thing – the so-called rich (defined by them as earning over £80,000) would be hit hard while those who are actually rich and already pay 28 per cent of all the tax ( the top 1 per cent of earners) would, in numbers, leave the country, rendering their policies totally counter-productive.

Where Labour are 100 per cent wrong is that ‘the many’ would soon see their pensions, NHS and education crumble as capital fled the country and tax receipts withered.

Let’s make no mistake. This election will define whether Britain remains a liberal, tolerant free market open economy or moves towards a command, retributive and increasingly politically arbitrary country where investment, opportunity and jobs collapse.

The scale of Labour’s proposals are staggering. The headline £83bn, or 4 per cent of GDP, works out at an addition £2,515 of tax for each and every employee, but it is the scale of the detail that compounds this unprecedented largesse.

Over a decade Labour propose a £400bn ‘National Transformation Fund’, of which £250bn will be earmarked for a new Green Transformation Fund. Then there is the £250bn ‘National Investment Bank’ with a network of regional banks directly lending into ‘infrastructure and innovation’. Sounds great but such centralised direction of capital is not the role of the state. Such policies were tried to much smaller effect in the 1970s with disastrous consequences.

If this was not enough a £140bn Social Transformation Fund would direct investment in key infrastructure. Of course all this is before the potentially £200bn cost of nationalising water, rail, post and taxpayer-funded broadband.

Add that little lot up and we find additional commitments of close to £2 trillion over a decade or around £54,000 for each and every employee in the country. It is simply not credible.

What is clear is Labour wants to direct and control this investment in a highly centralised top-down fashion. This is the opposite to what should happen in a liberal economy with a myriad of micro individual and business bottom-up decisions based on the free market. Labour’s ideas are a recipe for waste, inefficiency and declining productivity.

Britain’s accumulated debt is currently £1.8 trillion, or 84 per cent of GDP, which is what many economists consider is close to a safe maximum. The deficit has, despite the disastrous position the Conservatives inherited from Labour, been brought slowly but surely under control.

To increase spending even remotely on the scale proposed by Labour will cause immense capital flight and be counter-productive. Britain is currently an open economy and frankly individuals and business invested here because they viewed the UK as a safe haven in a dangerous world, with the rule of law, stable taxes, strong cultural assets and because, property rights were secure. Labour’s prospectus breaks that covenant.

Capital and talent will leave instantly if this Labour prospectus comes anywhere near happening. There is no example of any liberal, open western democracy that has adopted such a centralised command and control and frankly illiberal regime. None. We have to look to Latin America with Argentina being the closest analogy.

Soft words Mr Corbyn but your actions will do untold harm. You are honest enough to say you will harm the rich. But alas you will harm the poor too and cause immense social discord in the process.

Prosperity cannot be taken for granted, it is a fragile flower. Argentina, one of the richest nations on earth before the First World War now languishes. If Corbyn wins he will start the process of sending this great nation on the road to Argentina.

By Ewen Stewart

Source: City AM

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Getting Brexit done will not help UK economy, say academics

Carrying out Brexit will not improve the UK’s struggling economy but will usher in years more uncertainty about Britain’s trading relationships, a new report has said.

The hard Brexit that Prime Minister Boris Johnson is proposing will also limit the size of the UK market and raise trade costs, making it a less attractive place for investment, according to at the London School of Economics (LSE).

The report says the UK economy has suffered a “lost decade”. Productivity – output per hour worked – is 24 per cent below its pre-financial crisis trend and real wages are yet to return to 2008 levels.

A major factor has been low levels of investment, the report says, which was suppressed in part by austerity and more recently by Brexit uncertainty.

Johnson has said that leaving the European Union with a Brexit deal would boost the economy. Professional services firm KPMG said in September that a Brexit deal would mean “investment recovers some ground”.

However, John Van Reenen, professor of economics at LSE and an author of the report, said: “It is a mistake to believe that ‘getting Brexit done’ will improve things.

“First, there will be continued uncertainty due to years of negotiation over what form the UK’s future trading relationship with Europe will actually look like. Second, a hard Brexit is certainly bad for the economy compared with remaining in the EU.

“The UK will be a relatively smaller market with higher trade costs with our closest neighbours, so a less attractive place for investment.”

To address Britain’s “abysmal” performance on productivity and “pitiful” wage growth, more public and private investment is required, the LSE report said today.

All the major parties have promised to increase government spending in their manifestos ahead of the 12 December General Election, with Labour’s radical, but much-criticised, plans promising by far the most.

Van Reenen said: “It is welcome that the main parties are promising increases in spending to finance public investment, so long as such investments are based on solid evidence rather than political gimmicks and ministerial whims.”

By Harry Robertson

Source: City AM

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Sterling falls against the dollar as UK economy slows but US picks up

The pound has fallen against the dollar as traders near the end of their week after survey data was better than expected in the US but painted a gloomy picture of the UK economy.

Sterling was trading 0.59 per cent lower against the greenback by 4.40pm, taking it to $1.283.

A falling pound alongside positive noises from China concerning a US trade deal helped the FTSE 100 end the day 1.22 per cent higher.

Traders sold off sterling following a worse-than-expected survey reading which showed that the UK private sector has suffered its biggest fall in output in over three years in November.

By contrast, US factory and services activity picked up pace this month, a survey from data firm IHS Markit showed.

The reading, which was better than analysts had hoped for, boosted the dollar. Against the euro, for instance, the dollar has risen 0.25 per cent to €0.906 by 4.40pm UK time.

Connor Campbell of trading platform Spreadex called the UK figures “nasty, nasty numbers”. He said they were “so bad that sterling was swiftly booted into the red”.

Andy Scott, associate director at risk assessor JCRA, said: “Sterling reacted negatively to today’s data which points to economic activity declining in November.”

He added that the reading supports the case made by the two Bank of England rate-setters who voted for a rate cut last month.

“The economy is clearly reflecting the strain placed on businesses from Brexit negotiations and the continuing state of flux,” he said, “added to which is a general election that includes one major party pushing for a relatively hard Brexit and radical socialist policy proposals from the other.”

Scott said the outlook for sterling “very much hangs on the outcome of the election, with the currency reacting positive to a number of voting intention polls that give the Conservatives a double-digit lead over the Labour party”.

A Tory majority is seen by most traders as a positive outcome for the pound as it increases the chances of Britain leaving the EU with a Brexit deal, which they hope would end some of the recent economic uncertainty.

By Harry Robertson

Source: City AM

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Long-term fixed savings rates drop to levels last seen before 2017 base rate rise

Longer-term fixed savings rates have plummeted to levels not seen since the Bank of England base rate rose in November 2017, according to Moneyfacts UK Savings Trends Treasury Report.

The research found that the average longer-term fixed bond rate (1.54 per cent) fell to its lowest point since July 2017 (when it stood at 1.49 per cent) and the average longer-term fixed ISA rate (1.35 per cent) fell to its lowest point since October 2017 (when it stood at 1.32 per cent).

Meanwhile, the average one-year fixed bond rate (1.28 per cent) is at its lowest level since June 2018 (when it also stood at 1.28 per cent), and the average one-year fixed ISA rate (1.21 per cent) is at its lowest level since May 2018 (when it stood at 1.19 per cent).

Rachel Springall, finance expert at Moneyfacts, said: “It will be disappointing news for savers to find the positive impact of both competition among challenger banks and two base rate rises over the past two years has unravelled in such a short space of time. Indeed, this year both the longer-term fixed bond and ISA average rates hit their highest peak since the 2017 base rate rise.

“In March 2019, the longer-term fixed bond rate hit 1.89 per cent, and the average longer-term fixed ISA rate had reached 1.62 per cent, meaning they have dropped by 0.35 per cent and 0.27 per cent respectively over the past eight months.”

Moneyfacts blamed the rate cut on savings providers not wanting to risk paying out an inflated rate to consumers if they feel interest rates are expected to fall over the next few years.

On the opposite side, savers may not want to invest in a longer-term fixed bond or ISA, and are instead opting to keep their cash close to hand. Pensioners may also be using easy access accounts instead of fixed while they decide what to do with their pension freedoms cash.

“The economic uncertainties could well be the cause as to why the amount invested within interest-bearing sight deposits more than doubled in September year-on-year, one month before the UK was due to depart the EU. In comparison, money continued to flow out of interest-bearing time deposits in September 2019, according to Bank of England statistics,” said Springall. “Savers are also still playing it safe by placing their cash within the high street banks, even though they do not pay the best interest rates on the market. The biggest banks are more robust than during the financial crash as they have had to amass more capital reserves.”

Written by: Emma Lunn

Source: Your Money

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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.

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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UK business confidence slumps to seven-year low

Confidence among UK businesses tumbled to its lowest level in over seven years last month, according to a new report, as yet more political uncertainty cast gloom over the economy.

Businesses in Britain’s manufacturing sector were the most pessimistic. Manufacturers are now facing “recessionary conditions,” the latest optimism index from accountants BDO said today.

The optimism index – a gauge of how companies are feeling about the economy – fell 0.67 points to 95.59 in October, just above the 95 level which indicates zero growth.

The fall was driven by a steep fall of 3.38 points in the manufacturing sector. Output in the sector also suffered, falling for a thirteenth consecutive month to hit 87.10 points. BDO said the score was “well into recessional territory”.

British growth has slowed considerably in 2019, but looks set to avoid a recession despite the economy contracting in the second quarter.

Manufacturing has borne the brunt of the slowdown, with weak global demand and ongoing Brexit uncertainty taking its toll on business investment, orders and exports.

Despite Prime Minister Boris Johnson striking a Brexit deal with the European Union in October, the upcoming General Election means uncertainty is set to linger over the economy for the time being.

BDO partner Peter Hemington said: “The last time we saw business confidence at such a low level was when the country was staggering out of the doldrums caused by the global financial crisis.

“With an unpredictable general election looming, continued political volatility in the UK remains a key driver of falling optimism.”

Dwindling confidence in the economy was accompanied by a fall in business output in October, BDO said.

Worryingly, not only the manufacturing sector but also the UK’s giant services sector registered a fall in output on BDO’s gauge.

Hemington said things did not look likely to pick up soon. “Given British businesses are telling us that new hires and investment are hard to justify at the moment,” he said, “growth will continue to remain elusive until there is some kind of resolution of the Brexit conundrum.”

By Harry Robertson

Source: City AM

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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