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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK economy lags behind G7 rivals as growth revised down - as it happened

The City of Birmingham
The City of Birmingham Photograph: Gabor Legar / EyeEm/Getty Images/EyeEm

And finally, Britain’s stock market clawed back some of its losses to end the day down 29 points, or 0.4%, at 7272 points.

That’s partly thanks to a pick-up on Wall Street, where traders welcomed today’s strong weekly jobless figures.

City traders have also been digesting today’s UK growth downgrade, and its implications for monetary policy.

Fiona Cincotta of City Index explains:

UK GDP was revised downwards to 0.4% quarter on quarter, missing expectations of 0.5%. Britain grew just 1.4% year on year making it the slowest growing major economy, lagging behind Italy and Japan, as Brexit uncertainties continue to impact on data.

Whilst this isn’t a huge downwards revision, it was sufficient to knock investor confidence over whether the BoE will be able to hike rates as soon as May. The question arises once again as to whether the UK economy is strong enough to sustain a rate rise in the Spring, with so many Brexit uncertainties still unresolved.

That’s all for today. Thanks for reading and commenting. GW

Here’s our full story on today’s growth figures, by my colleague Angela Monaghan:

Britain’s economy grew at a slower rate than first thought in the final three months of 2017, leaving the UK lagging further behind other major economies as it prepares to leave the EU.

The Office for National Statistics revised down its estimate for UK growth in the fourth quarter to 0.4%, following an earlier estimate of 0.5% and missing economists’ forecasts that the rate would be unchanged.

It said UK production was lower than initially estimated, and said consumers were less willing to spend due to the price rises triggered by the sharp fall in the pound following the Brexit vote.

The weaker end to the year weighed on the economy’s performance in 2017 overall, with growth revised down from 1.8% to 1.7% – the weakest in five years. As the global recovery gathers pace, Britain is falling behind other major economies. The German economy grew by 2.2% in 2017, French GDP increased by 1.9%, and the US economy expanded by 2.3%.

“A number of very small revisions to mining, energy generation and services were enough to see a slight downward revision to quarterly growth overall,” said Darren Morgan, a statistician at the ONS.

More here:

I”ll be back later with the closing market report....

The Guardian’s latest Brexit Dashboard is out.

This month’s report warns that “Cracks are starting to appear in UK economic resilience”, with growth revised down today and yesterday’s jobs figures showing a rise in unemployment.

Matt Whittaker of the Resolution Foundation has tweeted about today’s GDP report, explaining how the recovery from the 2008 financial crisis has been so mediocre:

Newsflash from America: The number of US citizens signing on for unemployment benefit fell to 222,000 last week, down from 229,000.

That’s close to the 45-year low set in January, and shows the US labor market is robust.

THE ANGRY BIRDS MOVIE.

Back in the financial markets, shares in mobile phone game-maker Rovio Entertainment have taken a real hammering.

Shares in Rovio are down 47% after it released a shock profits warning. The firm, famous for its Angry Birds game, now expects to make between €260m and €300m this year - analysts had expected €336.

Rovio only floated on the stock market last September, at €11.50 per share; they’re now worth just €5.20.

Bloomberg pins some of the blame for Britain’s slow economy on the 2016 EU referendum, and the slide in sterling:

Part of the economy’s weakness reflects the fallout from the pound’s drop since the vote to leave the EU in 2016. After inflation surged, household spending rose the least in five years in 2017.

Chart: Businesses cry out for Brexit certainty

Professor Costas Milas of the University of Liverpool has created a neat chart, showing how economic uncertainty can hit business investment.

Econ

The orange line uses newspaper articles in The Times and Financial Times discussing economic policy uncertainty, and shows its deviation from its average over the last three years.

You can see how uncertainty spiked in 2016 (after the Brexit vote), just as business investment (blue) declined. Earlier in the decade, though, business investment rose steadily as economic uncertainty declined.

Professor Milas explains:

Efforts by Ms May to clarify Brexit issues in 2017 have contributed to a 2.1% growth in Business investment (in 2017) following from the disastrous 0.5% drop in 2016. What the graph is really telling us is that Business leaders are crying for additional clarity so that they can invest again!

Updated

Just in: UK retail sales growth has slowed, for the third month in a row.

That’s according to the CBI’s monthly healthcheck on the sector, which found that sales fell across clothing, footwear & leather, department stores, and furniture & carpets.

The CBI found that 32% of respondents reported that sales volumes were up on a year ago in February, while 24% said they were down. That giving a balance of +8%, down from +12 in January.

On a year-on-year basis, the UK economy grew by 1.4% in the last quarter of 2017.

In contrast, the eurozone grew by 2.7%, Germany expanded by 2.9%, France grew by 2.4%, and American GDP rose by 2.5%. Italy grew by a more modest 1.6%.

Updated

Robert Gordon, CEO of Hitachi Capital UK, is disappointed that UK business investment was flat in the last quarter of 2017.

We would like to see businesses taking a more proactive approach to tackling productivity and driving growth through positive investment in key assets over the next few months.”

John Hawksworth, chief economist at PwC, predicts that the UK will continue to lag behind major economies such as the US and Germany this year.

Here’s his take on today’s GDP figures:

“The big picture has not changed. The UK economy is still estimated to have slowed markedly in the first half of 2017 as higher inflation - linked primarily to the weaker pound after the Brexit vote - dampened real household spending power. This factor continued to dampen consumer spending growth in the second half of 2017, but was offset by a stronger world economy, which boosted UK exports in areas like manufacturing and financial and business services.

Government spending also provided some support as the Chancellor eased off on austerity, particularly as regards public investment.

“As a result of these factors, UK growth picked up to around 0.4-0.5% per quarter in the second half of 2017 from only around 0.2-0.3% in the first half. But there are signs that growth may have eased off again in January, so we expect UK growth to remain relatively modest at around 1.5% in 2018 as a whole. This would not be disastrous by any means, but would place us towards the bottom of the G7 growth league table together with Italy and Japan, rather than at the top with Germany and the US.”

Today’s growth downgrade suggest the UK economy isn’t ready for an interest rate hike, suggests Sam Tombs of Pantheon Macroeconomics.

Suren Thiru, head of economics at the British Chambers of Commerce, is concerned that the economy remains unbalanced - with the trade deficit widening in the last quarter.

Updated

Jacob Deppe, Head of Trading at online trading platform, Infinox, says:

“The brief flurry of optimism triggered by December’s breakthrough in Brexit negotiations is looking ever more illusory.

“This downward revision to fourth quarter GDP confirms that Britain’s economy ended 2017 with a whimper rather than a bang.

“To make matters worse, it’s becoming clear that the slowing momentum experienced at the tail end of last year has dragged into the start of 2018. January’s weak retail sales figures, and the news that factory orders fell to a four-month low, all point towards continued weakness in the UK economy.

UK GDP

UK is falling behind G7 rivals

Britain’s economy has just posted its weakest annual growth rate since 2012.

This morning’s downgrade in UK growth, to just 1.7% last year, also means the UK is lagging behind other advanced economies.

Economist Rupert Seggins points out that Britain has historically done rather better....

UK growth revised down: Snap reaction

City experts are disappointed that Britain’s growth rate in the last quarter has been revised down to 0.4%.

Andy Bruce of Reuters says the data is rather worse than expected:

Simon French of Panmure Gordon suggests the UK isn’t getting the full benefit of the strengthening global economy.

Economist Ulrik Bie fears that household spending will keep being squeezed..

Dennis de Jong, managing director at UFX.com, says Britain’s economy is lagging:

“The news comes at a crucial time for Prime Minister Theresa May, who welcomes her top ministers to Chequers for Brexit talks today. With economies on the continent and the eurozone as a whole both performing well at the moment, it’s a tough day for Brexiteers to present their argument, as Britain risks being left behind.”

Analysts at Danske Bank says Britain’s traditional growth engines are lagging:

In another blow, Britain’s trade deficit widened in the last three months of last year.

The ONS explains:

In Quarter 4 2017, the net trade deficit widened to £12,237 million in volume terms, from £9,661 million in Quarter 3 2017. This was due in part to large increases in the price of fuels that were imported combined with decreases in the volumes of fuels exported. Total trade imports increased by 1.5% whilst total exports decreased by 0.2%, between Quarter 3 and Quarter 4 2017.

Despite the widening of the trade deficit in the latest quarter, looking at 2017 as a whole the trade deficit has narrowed, from £46,912 million in 2016 to £40,404 million in 2017.

Today’s growth report shows that UK business investment was flat in the last three months of 2017.

That could be a sign that firms are holding back until they have more clarity over Brexit (something Bank of England governor Mark Carney warned of yesterday).

Household spending rose by 0.3% during Q4 2017, which means it only grew by 1.8% last year. That’s the lowest rate of annual growth in household spending since 2012.

UK growth revised down to 0.4%

Newsflash: Britain’s economy grew slower than first thought in the final three months of 2017.

Uk growth in the fourth quarter of last year has been revised down to 0.4%, from an initial estimate of 0.5%.

That’s because the Office for National Statistics has revised downwards its estimated output of the production industries.

Annual growth for 2017 as a whole has also been revised down a little, from 1.8% to 1.7%.

The ONS says:

  • Growth in the latest quarter was driven by business services and finance within the services sector, there was, though, a small downward revision to services since the preliminary estimate of GDP, but this does not impact on services quarterly growth to one decimal place.

  • Business investment growth was flat between Quarter 3 (July to Sept) and Quarter 4 (Oct to Dec) 2017, but when compared with the same quarter a year ago business investment grew by 2.1%.

    • The ONS has also revised UP its estimate of growth in the third quarter of 2017, from 0.4% to 0.5%. But it’s also revised DOWN growth in the first three months of 2017, from 0.3% to just 0.2%.

    UK growth rates
    UK growth rates Photograph: ONS

    Updated

    Greek Prime Minister Alexis Tsipras casting his ballot last night
    Greek Prime Minister Alexis Tsipras casting his ballot last night Photograph: Anadolu Agency/Getty Images

    Speaking of Greece....

    Greek MPs have voted to investigate ten of the country’s top politicians, including two prime ministers, over allegations they were bribed by the Swiss drug- maker Novartis for giving the company preferential treatment.

    Helena Smith reports from Athens:

    After a marathon 20-hour debate punctured by hostility and abuse, Greek MPs voted to probe all ten of those accused of accepting mammoth bribes from Novartis. Two former finance ministers, including Yiannis Stournaras, the governor of the Bank of Greece, are among the accused. Addressing the 300-seat House, Stournaras described the allegations as false and disgusting saying they amounted to character assassination. “These false allegations have severely damaged my honour and dignity both among the Greek people and abroad,” he told MPS. “They undermine the integrity of the country’s central banker.”

    The claims, outlined by prosecutors originally tipped off by US authorities, involve bribes of as much as €50m being paid to politicians between 2006 to 2015 to promote Novartis products. The practice is believed to have cost the bankrupt Greek health system around €4bn. In a midnight speech, the Greek prime minister Alexis Tsipras vowed that justice would be done. “We will not cover up (the scandal),” he told MPs.

    “The Greek people must learn who turned pain and illness into a means of enrichment.”

    In often emotional speeches all of the politicians angrily denied the accusations saying the claims had been deliberately “set up” by Tsipras’ leftist-led coalition. Several have launched legal suits against the anonymous witnesses behind the claims who are now under government protection.

    Ahead of the vote, EU migration commissioner Dimitris Avramopoulos, among those named, told Skai TV:

    “Justice will speak the moment these bastards who set up this conspiracy find themselves in the dock.”

    More MPs voted to investigate Avramopoulos, a former health minister, than any other politician also implicated.

    At a time when it was hoped Greece was finally emerging from economic crisis, investors have been watching nervously. The debt-laden is hoping to return to markets once its final bailout expires in August.

    Highlighting fears, the main opposition New Democracy leader Kyriakos Mitsotakis asked: “Who will invest in a country with such a toxic political environment.”

    Greek bonds rally after Moody's upgrade

    Greek government bonds are rallying this morning, despite the wider selloff, after Moody’s raised the country’s credit rating by two notches to B3.

    In a boost for Athens, Moody’s said that it expects Greece to return to self-sufficiency and market-based funding when its bailout ends this summer.

    This pushed up the price of Greek 10-year debt, sending the yield (or interest rate) down by 15 basis points to 4.3% (from 4.45%).

    Union anger as Centrica axes thousands of jobs

    A gas hob with a bill from British Gas.

    Energy firm Centrica is cutting 4,000 jobs after posting a 17% tumble in adjusted profits.

    In a contrite statement to the City, Centrica boss Iain Conn admits that 2017 was a rough year.

    The combination of political and regulatory intervention in the UK energy market, concerns over the loss of energy customers in the UK, and the performance issue in North America have created material uncertainty around Centrica and, although we delivered on our financial targets for the year, this resulted in a very poor shareholder experience.

    We regret this deeply, and I am determined to restore shareholder value and confidence.

    Centrica, which operates British Gas, is planning to strip more costs out, in an attempt to boost profitability. And that means that 4,000 jobs will be cut by 2020.

    Unions are aghast at the plan. UNISON’s national energy officer Matt Lay said:

    “Staff quite simply will be devastated. Although Centrica has already shed thousands of jobs, it’s nowhere near out of the woods, and there’s much more misery to come.

    “British Gas staff shouldn’t be feeling the heat today. It should be Centrica chief executive Iain Conn.

    “British Gas can’t go on putting the squeeze on its staff and customers. If the company is to survive, it needs first class products, priced competitively to help rebuild its market share, and a genuine strategy for growth. Without this, thousands of UK jobs are at stake, in areas of the country where decent employment can be hard to find.

    Barclays is defying the selloff, with its shares jumping almost 6% in early trading.

    Barclays posted a £1.9bn net loss for 2017, dragged into the red by a charge following Donald Trump’s tax reforms. But investors are happy that the bank has pledged to restore its dividend this year.

    The German stock exchange in Frankfurt

    European stock markets are a sea of red in early trading.

    The FTSE 100 has lost 68 points, or nearly 1%, to 7121 points. It’s being dragged down by mining giants, due to the rise in the US dollar (which pulls down commodity prices).

    The German DAX is down 0.8%, and the French CAC has lost 0.6%.

    Not massive losses, but a sign of jitteriness over the prospect of higher US interest rates.

    European markets this morning
    European markets this morning Photograph: Thomson Reuters

    Lee Wild, head of equity strategy at interactive investor, says the markets are in a volatile state.

    Just as it seemed traders had acclimatised to inflation, rising interest rates and higher bond yields, the fears that caused this month’s crash were reignited by minutes from the Federal Reserve’s last meeting.

    The Dow Jones fell over 470 points, or 1.9% from its mid-afternoon peak as the dollar rallied, making a one-week high against the pound.

    Economists have been quickly revising their forecasts for US interest rate hikes, following last night’s Fed minutes.

    Nordea Markets, for example, now expect four hikes in 2018:

    The prospect of higher American interest rates has sent the US dollar spiking.

    This has dragged the pound down to $1.388 against the dollar, from over $1.40 earlier this week.

    Over in Tokyo, a Federal Reserve policymaker has given another hint that US interest rates will rise steadily this year.

    Fed Governor Randal Quarles says:

    I anticipate further gradual increases in the policy rate will be appropriate to both sustain a healthy labor market and stabilize inflation around our 2 percent objective.

    “The U.S. economy appears to be performing very well and,certainly, is in the best shape that it has been in since the crisis and, by many metrics, since well before the crisis.”

    An electronics stock indicator in Tokyo today.
    An electronics stock indicator in Tokyo today. Photograph: Kazuhiro Nogi/AFP/Getty Images

    Last night’s Fed’s hawkish minutes have sent Japan’s Nikkei down 1%, and wiped 1.3% off the Hong Kong Hang Seng.

    The agenda: Fed minutes spook the markets; UK GDP

    Traders on the floor of the New York Stock Exchange on Thursday.
    Traders on the floor of the New York Stock Exchange on Thursday. Photograph: Lucas Jackson/Reuters

    Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

    World stock markets are in retreat this morning, after America’s central bank dropped a clear hint that interest rates will rise steadily this year.

    In the minutes of its last meeting, released last night, the Federal Reserve revealed that several policymakers are more optimistic about the US economy, and have raised their growth forecasts.

    This suggests they are likely to hike borrowing costs four times this year - more than many in the markets had expected.

    As the Fed put it:

    “A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.”

    This send shares sliding on Wall Street, where the Dow lost its earlier gains to finish 166 points lower.

    Bonds have also been hurt by the prospect of tighter monetary policy, as volatility ripped through the markets again.

    Hussein Sayed, chief market strategist at FXTM, explains:

    Volatility soared in equity and fixed income markets in the final hours of yesterday’s U.S. trading session. After dropping to 17, the Cboe Volatility Index gained 19%, ending the day above 20. The S&P 500 reversed a gain of 1% to end the day 0.55% lower.

    Similarly, the Dow Jones gave up 470 points from peak-to-trough, while U.S. Treasury yields spiked across the curve, and 10-year yields breached 2.95% for the first time in four years.

    Over in Asia, most markets are in the red too, and we’re expecting losses in Europe when trading begins.

    The falls come as the City prepares for the second estimate of UK growth in the final three months of 2017.

    This will give more detail about how Britain’s economy performed during the quarter; it’ll probably confirm that growth rose to 0.5%.

    In the City, Barclays Bank, energy firm Centrica and defence group BAE Systems are reporting results:

    And in parliament, MPs will be grilling KPMG over its role auditing failed outsourcing group Carillion.

    The agenda

    • 9.15am GMT: Business, Energy and Industrial Strategy Committee and Work and Pensions Committee hold Carillion hearing
    • 9.30am GMT: Second estimate of UK GDP for the fourth-quarter of 2017
    • 11am GMT: CBI’s survey of UK retail sales
    • 12.30pm GMT: European Central Bank publishes minutes of its January meeting
    • 1.30pm GMT: US weekly jobless figures

    Updated

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