Closing summary
“Stable but stubbornly high”: US inflation edged higher to 5.4% in September from 5.3% in August, taking it back to the 13-year highs set in June and July, when the annual rate was also at 5.4%. It was pushed higher by food, energy and car prices. The core rate, which strips out volatile items such as food and energy, stayed at 4%, after reaching a 30-year peak of 4.3% in June.
The boom in domestic holidays fuelled a rebound in Britain’s economy in August as bars, restaurants and festivals benefited from the easing of most remaining Covid restrictions during the height of summer. The UK economy grew 0.4% following a revised 0.1% drop in July. However, economists warned that growth may not be sustained as material and fuel shortages take their toll on the economy.
Brexit- and Covid-related shortages have held back UK exports, leading to a worsening in the trade deficit in August. But the eurozone’s industrial sector has also been hit by the supply chain crisis, in particular chip shortages which affected Germany’s carmakers and contributed to a 4.1% slump in German industrial output.
Stock markets are mostly higher, with the FTSE 100 index in London flat at 7,128 while Germany’s Dax is 1% ahead and on Wall Street, the Nasdaq has gained 0.8%.
Here are our other main stories:
UK pre-bookings for air freight services in October have soared 70%, according to one cargo group, as businesses seek a way to circumvent backlogs at ports.
The backlog at the UK’s largest container port is “improving”, so Britons should shop normally for Christmas, a cabinet minister has said, after reports of large vessels bringing goods from Asia being diverted away.
Amazon could owe compensation totalling £140m to thousands of drivers delivering its parcels, according to a law firm that is launching a group claim on their behalf.
Rail firms have started moves to shed thousands of staff as the industry seeks to cut costs by £2bn after losing millions of passengers due to coronavirus.
Employees working for train operators have been invited to apply for severance schemes in a move denounced by unions as “ludicrous” and a “breach of trust”.
Despite increased representation within the British music industry, the UK sector remains hostile to Black creators and professionals, according to a report that highlights the effects of systemic racism on mental health and a racial pay gap that disproportionately affects Black women.
Dystopian South Korean drama Squid Game has become Netflix’s most popular series ever, drawing 111 million fans since its debut less than four weeks ago.
Thank you for reading and commenting. We’ll be back tomorrow. Bye! - JK
Updated
One strategist described US inflation as “stable but stubbornly high”.
Ben Laidler, global markets strategist at multi-asset investment platform eToro, said:
The latest US inflation report at a 13-year high 5.4% rate is stable but stubbornly high. Price pressures are being driven by supply-chain bottlenecks, higher energy prices, and rising wages. However, the fourth straight month of stable inflation still supports the Fed’s go-slow tightening stance, and consequently equity markets.
September US consumer price inflation rose a little ahead of 5.3% market expectations. This was the fourth straight month of rises between 5.0 and 5.5%. Inflation momentum picked up to 0.4% versus last month, above 0.3% forecasts, with over half the increase driven by housing and food costs.
A rate of 5.4% inflation is well above the Federal Reserve’s average 2% target, but the stabilisation of price growth in recent months supports its gradual and transparent move to tightening policy. This will likely kick off next month with the Fed to announce tapering back its $120 billion monthly bond buys. This high but stable inflation and a go-slow Fed supports markets, with earnings recovering and market valuations above average.
Wall Street opens higher
On Wall Street, the Dow Jones has risen 23 points to 34,401, while the S&P 500 is up nearly 10 points, or 0.2%, at 4,360 and the Nasdaq has gained 70 points, or 0.5%, to 14,536.
All of Europe’s main indices are now in positive territory. Financial markets have shrugged off the uptick in US inflation back to 13-year highs, as they await the minutes of the last Federal Reserve meeting, out tonight.
Alastair George, chief investment strategist at Edison Group, said about the rise in US inflation back to 13-year highs:
US CPI came in a fraction ahead of expectations and remains at 13-year highs. Recent strength in food and energy prices suggests that consumer budgets will continue to be pressured by rising prices but more importantly for policymakers goods inflation remains elevated due to supply shortages.
This report re-emphasises the uncomfortable truth that inflation is running significantly ahead of Fed policymakers’ expectations at the start of the year. Combined with weakening survey data, it seems investors face a period of ebbing profits growth, even as interest rates march higher.
The Snapchat app appears to be down, and some users are heading to Twitter.
We’re aware that some Snapchatters are having issues using the app right now - hang tight, we’re looking into it!
— Snapchat Support (@snapchatsupport) October 13, 2021
Back in the UK, rail firms have started moves to shed thousands of staff as the industry seeks to cut costs by £2bn after losing millions of passengers due to coronavirus, reports our transport correspondent Gwyn Topham.
Employees working for train operators have been invited to apply for severance schemes in a move denounced by unions as “ludicrous” and a “breach of trust”.
The Rail Delivery Group (RDG), which represents train firms, has not put a limit on numbers who could apply for severance. It said the scheme was “part of a vital set of reforms” for the railway to recover from the pandemic and respond to changing travel patterns.
Passenger numbers are now at about 65% of pre-Covid levels, having dropped by almost 95% in the first lockdown, but commuting on the railway – providing revenue from peak time and season tickets – is lagging far behind the recovery in leisure travel.
While the government has pledged to continue with major rail schemes, as well as restoring some branch lines lost in the Beeching cuts in the 1960s, the spectre of a declining railway has been revived after years of growth.
Markets have taken the uptick in US inflation in their stride. John Leiper, chief investment officer at Titan Asset Management, said:
Today’s year-on-year inflation number came in slightly above expectations at 5.4% versus 5.3% prior and expected. Core inflation, which excludes food and energy, came in-line with expectations. Following two underwhelming jobs reports, that’s probably insufficient to add fuel to the fire that inflation is running away.
As such I don’t think this changes the ‘temporary’ versus ‘persistent’ debate or the Fed’s thinking around taper. Market reaction is muted with equity futures and the dollar holding steady and Treasury yields slightly higher.
Higher food prices (up 4.6%), and a 24.8% surge in energy prices pushed up the US inflation rate last month.
New vehicles also went up in price, by 8.7%, while used cars and truck prices jumped 24.4%, the figures from the US Bureau of Labor Statistics showed.
INFLATION WATCH: The cost of living rose 0.4% in September, CPI shows. Yearly increase in CPI edges up to 5.4% from 5.3%. Core CPI (minus food & energy) rose 0.2%. Core increase over past year stays at 4%. Already at a 30-year peak, US inflation likely to run high well into 2022.
— MarketWatch Economy (@MKTWeconomics) October 13, 2021
US inflation rises to 5.4% in September
NEWSFLASH: US inflation picked up slightly to 5.4% in September, up from 5.3% in August and back to July’s 5.4% rate, which was a 13-year high. Economists had expected another 5.3% reading.
Slight uptick in US CPI here, but not enough to get bond or FX markets excited it seems. I don't think we're looking at further upwards pressure on inflation being the problem anymore though, more a question of it taking longer to climb back down again.
— Simon Harvey (@_SimonHarvey) October 13, 2021
Updated
IMF: 65-75 million more people to fall into poverty due to Covid
Economic growth in poorer countries will likely lag pre-pandemic expectations for years, given gaps in vaccination rates, revenue growth and the ability to borrow, the International Monetary Fund warned in its Fiscal Monitor report released today.
Global debt levels increased to a record $226 trillion in 2020, a $27 trillion jump in just one year that far exceeds the $20 trillion cumulative gain during the global financial crisis of 2008 and 2009, the report showed.
About 90% of that increase came from advanced economies, plus China, with emerging and developing economies far less able to access financial markets for their spending needs, and also more vulnerable to possible interest rate rises, Vitor Gaspar, the IMF’s head of fiscal policy, told Reuters in an interview.
The great vaccine divide, climate change, and the great financing divide are global problems that demand global action.
He warned that low-income countries face compounding challenges that could slow growth prospects for years.
The pandemic has exacerbated the “already considerable” financing gaps facing low-income countries before the crisis, Gaspar said, adding that emerging and developing economies were also more vulnerable to changes in global interest rates.
This means they could see borrowing costs rise faster than expected once central banks start to remove monetary support seen during the pandemic, the report said.
Global government debt has stabilized at a record $88 trillion, just below 100% of gross domestic product, with fiscal and economic developments varying widely, depending on local vaccination rates, the stage of the pandemic, and the ability of governments to access low-cost borrowing.
Overall, the report predicted 65 million to 75 million more people will fall into poverty by the end of 2021 than would have been the case without the pandemic.
Updated
Meanwhile, Amazon could owe compensation totalling £140m to thousands of drivers delivering its parcels, according to a law firm that is launching a group claim on their behalf, reports Joanna Partridge.
Drivers who deliver for Amazon through its “delivery service partners” are classed as self-employed, meaning they are not entitled to employee rights such as holiday pay and the minimum wage, while they also do not have an employment contract.
The law firm Leigh Day believes at least 3,000 drivers are affected, and could be entitled to an average of £10,500 in compensation for each year they have delivered for the online retail giant. It believes Amazon could owe drivers a total of £140m in compensation.
Back to the supply chain crisis. UK pre-bookings for air freight services in October have soared 70%, according to one cargo group, as businesses seek a way to circumvent backlogs at ports, our retail correspondent Sarah Butler reports.
Air Charter Service, which enables retailers and other businesses to hire entire planes to transport goods, said demand had stepped up from September, when bookings at its UK office were already 20% up year on year, or 150% on pre-pandemic levels.
Dan Morgan-Evans, its group cargo director, said there had been a “noticeable jump” in forward bookings and he expected pre-bookings for the full month of October to be about double those of last year.
“Having so many flights pre-booked at the beginning of the month for cargo is completely out of the ordinary,” he said.
Here is the full analysis of today’s UK GDP figures from the National Institute of Economic and Social Research, a respected economic think tank. It is forecasting GDP growth of 1.5% in the third quarter, followed by 0.8% in the fourth quarter.
Rory Macqueen, principal economist at NIESR, said:
The reopening of the economy continued to support growth in August, with the popularity of domestic holidays contributing to 23% month-on-month growth for hotels and campsites in particular. The fact that consumer-facing services remain 5% below their peak suggests ample room for future catch-up in future too.
Elsewhere a further fall in construction output may have been down in part to a reported increase in input costs: something likely to affect the economy more broadly if shortages lead to more generalised price rises over the autumn. The coming months could see something of a two-speed recovery, with sectors most affected by shortages in decline while others continue to recover.
@JuliaKollewe https://t.co/dNzmX00Z3r
— National Institute of Economic and Social Research (@NIESRorg) October 13, 2021
Kremlin: Gazprom supplying gas at maximum levels
The Kremlin said today that the Russian gas giant Gazprom was supplying gas to Europe at maximum levels under existing contracts, and any increase would need to be negotiated with the company.
“Nothing can be delivered beyond the contracts,” Kremlin spokesperson Dmitry Peskov told reporters, according to Reuters. “How? For free? It is a matter of negotiating with Gazprom.”
Separately, deputy energy minister Pavel Sorokin said Russia had not changed its timetable for gas injection into storage facilities until 1 November, implying the country is in no rush to supply additional gas to Europe on the spot market.
European gas prices have hit record levels this month, but the Kremlin has repeatedly denied that Russia is using gas supplies as leverage to obtain quick regulatory approval of its new Nord Stream 2 gas pipeline across the Baltic Sea to Germany.
The owner of British Gas has postponed a major investor event due to the “unprecedented” energy crisis. A surge in wholesale gas prices will push up household bills, and has resulted in the failure of a number of smaller energy suppliers.
This has prompted Centrica, which owns Britain’s biggest energy supplier, British Gas, to postpone its investor day, planned for 16 November.
Chris O’Shea, the chief executive, said:
In this current unprecedented commodity price environment we remain focused on looking after our residential and business customers, whilst working as part of wider industry efforts in the UK to support the customers of failed suppliers and drive the regulatory reforms which are urgently required to make sure this situation never recurs. Unfortunately, that has meant taking the decision to postpone our planned Capital Markets Event in November.
Most of Europe’s main stock indices have turned positive, after a shaky start.
- UK’s FTSE 100 index flat at 7,126
- Germany’s Dax up 0.7% at 15,256
- France’s CAC up 0.27% at 6,565
- Italy’s FTSE MiB flat at 25,981
US stock futures are pointing to small gains on Wall Street later. In just over an hour, we’ll be getting US inflation figures for September, ahead of the Fed minutes this evening.
We also had German inflation data this morning. The final reading for September showed inflation in Europe’s biggest economy at 4.1%, the highest annual rate since December 1993.
This confirmed the provisional estimate. In July and August inflation was just below 4%, according to Germany’s statistics office.
Good morning from #Germany, where inflation has increased by >4%, highest since Dec1993.mainly driven by energy and food prices. Marked price increases were recorded for heating oil (+76,5%) & motor fuels (+28.4%). Prices of natural gas (+5.7%) and electricity (+2.0%) rose, too. pic.twitter.com/eKJ3ZLkSpz
— Holger Zschaepitz (@Schuldensuehner) October 13, 2021
The 1.6% decline in eurozone production mainly reflects production problems in the auto sector. Still, other sectors are also seeing production moderate on the back of shortages. This weighs somewhat on second-half GDP growth, but strong new orders do provide hope for the start of 2022, said Bert Colijn, senior eurozone economist at ING.
Of all the current shortages, semiconductors are proving to be the most disruptive to the macro picture and the auto sector is at the centre of the storm. Auto production in the eurozone is now 24% below the November level, also the peak before production hiccups started to occur. This drags on total production substantially.
Overall, with chip shortages expected to last well into 2022 and perhaps even 2023, the question is whether German weakness will continue. There are some signs that production improvements are around the corner, but supply uncertainty means that some underperformance compared to other countries is to be expected in the short run.
For eurozone growth it is important to note the gradual increase in the number of sectors that are seeing production growth fade. The supply side problems are starting to be reflected more in the growth figures for 2H 2021, and are contributing to the slide in GDP growth expected for this half of the year.
We still expect strong overall growth to persist and take solace from continued strong incoming demand. For now, it does not look like supply side problems will cause a hard landing, but to cause some turbulence along the flight back to normality.
Updated
Eurozone industry hit by supply chain crisis
The eurozone has been hit by the supply chain crisis, in particular the global chip shortages, the latest industrial production figures from Eurostat indicate. Industry struggled in August, when output fell 1.6% over the month after July’s 1.4% growth.
Germany posted a large contraction in August, of 4.1%, due in large part to weak car manufacturing, while the other big economies were more resilient: in France the sector expanded by 1%, possibly due to seasonal factors; Italy slipped by 0.2% and Spain eked out a 0.1% gain.
Maddalena Martini, economist at Oxford Economics, said:
In particular, the automotive sector is bearing the brunt of the global semiconductor shortage, with car manufacturers often sitting on a large stock of semi-finished vehicles waiting for components and having to resort to lower production or temporary plant shutdowns. Encouragingly, latest data suggest that the supply of microchips is finally turning a corner and we expect it to gradually ease over the coming quarters.
Moreover, manufacturing PMI surveys for August and September are also pointing to a moderation in growth. Therefore, we expect eurozone industrial production to have contracted marginally in the third quarter, before gradually gathering pace again as supply-chain disruptions start to fade.
Updated
Apple may slash the number of iPhone 13s it will make this year by up to 10m because of a shortage of computer chips amid a worldwide supply chain crunch that led the White House to warn that “there will be things that people can’t get” at Christmas, it emerged last night.
Apple was expected to produce 90m units of the new iPhone models this year but has told its manufacturers that the number would be lower because chip suppliers including Broadcom and Texas Instruments were struggling to deliver components, Bloomberg reported on Tuesday.
Shares in Apple fell 1.2% in after-hours trading on Tuesday, reflecting broader falls in the US stock market and in Asia especially because of fears that the lingering impact of Covid and supply chain problems will spark rampant inflation and hamper growth.
In other news...
Dystopian South Korean drama Squid Game has become Netflix’s most popular series ever, drawing 111 million fans since its debut less than four weeks ago, according to the streaming service .
The unprecedented global viral hit imagines a macabre world in which marginalised people are pitted against one another in traditional children’s games. While the victor can earn millions in cash, losing players are killed.
Spreading around the world by word of mouth, especially via social media, Squid Game has topped Netflix charts in more than 80 countries.
“Squid Game has officially reached 111 million fans – making it our biggest series launch ever!” tweeted Netflix.
Updated
China plans to build more coal-fired power plants and has hinted that it will rethink its timetable to slash emissions, in a significant blow to the UK’s ambitions for securing a global agreement on phasing out coal at the Cop26 climate summit in Glasgow, reports my colleague Rob Davies.
In a statement after a meeting of Beijing’s National Energy Commission, the Chinese premier, Li Keqiang, stressed the importance of regular energy supply, after swathes of the country were plunged into darkness by rolling blackouts that hit factories and homes.
While China has published plans to reach peak carbon emissions by 2030, the statement hinted that the energy crisis had led the Communist party to rethink the timing of this ambition, with a new “phased timetable and roadmap for peaking carbon emissions”.
The EU will offer to remove a majority of post-Brexit checks on British goods entering Northern Ireland as it seeks to turn the page on the rancorous relationship with Boris Johnson, our Brussels bureau chief Daniel Boffey reported last night.
Up to 50% of customs checks on goods would be lifted and more than half the checks on meat and plants entering Northern Ireland would be abandoned under the bold offer from Brussels.
The olive branch will be extended on Wednesday in defiance of the French government, which internally raised concerns about the proposed move by Maroš Šefčovič, the EU’s Brexit commissioner.
Turning to the supply chain crisis: the backlog at the UK’s largest container port is “improving”, so Britons should shop normally for Christmas, a cabinet minister has said, after reports of large vessels bringing goods from Asia being diverted away, reports my colleague Joanna Partridge.
Oliver Dowden, the new Conservative party co-chair, told Sky News that authorities at Felixstowe “have said the situation is improving” at the Suffolk port, which handles about 40% of containers coming in and out of the UK.
Dowden’s comments come after the world’s largest container shipping company, the Danish firm AP Møller-Maersk, called the port one of its biggest global challenges because of a backlog of containers caused by a shortage of HGV drivers.
The problems at Felixstowe, which also became gridlocked in late 2020, come at the start of the busiest period of the year for shipping firms and ports, with retailers importing higher quantities of goods from east Asia to sell during the Christmas trading season.
Updated
AJ Bell investment director Russ Mould said:
Shareholders in housebuilders have been looking on nervously, as the stamp duty land tax break has ended and the rules for Help to Buy continued to change but Barratt’s trading statement offers welcome reassurance.
The net reservations rate in its new financial year may have dipped slightly compared to 2020 but it has exceeded the level seen at this stage in 2019 by 18%, even though Help to Buy has represented only a fifth of house purchases compared to more than half in the first three months of the last financial year (and just under 40% for the year as a whole).
Prices are still rising, completions are still forecast to increase for the current year and management still seems confident in the future as it is stepping up its land-buying activities.
Barratt has already snapped up 3,735 new plots of land in the first three months or so of its financial year and is on track to meet its target of approving some 18,000 to 20,000 plots for development over the course of the 12 months to June 2022.
That in turn helps to underpin the firm’s plan to complete on 17,000 to 17,250 homes this year (with another 750 on top from joint ventures) as it moves toward its medium-term goal of 20,000 homes a year.
UK housebuilders lifted by Barratt update
Housebuilders are the top riser on the FTSE 100 index this morning, with Barratt, Britain’s biggest housebuilder, leading the way after an upbeat trading update. Its shares are up nearly 5% at 673.6p.
Taylor Wimpey, Persimmon and Berkeley Group have also enjoyed a boost, with the shares up 3.8% 3.6% and 2.3% respectively.
Barratt shrugged off supply issues and the phasing out of a tax break, and said it was on track to complete between 17,000 and 17,250 homes in the year to next June.
The company completed 3,699 private homes between 1 July and 10 October, which was down 8.3% on last year (when the housing market bounced back after grinding to a halt in the early stages of the Covid-19 pandemic), but was 14% ahead of pre-pandemic levels. Reservations of private homes averaged 281 a week, compared with 288 in the past year, and 262 in 2020.
David Thomas, the chief executive, said:
The positive start to the new financial year has continued in recent weeks with private reservations remaining strong. This is particularly encouraging given the significant year on year reduction in Help to Buy reservations and the ending of the stamp duty holiday.
We continue to work closely with our suppliers and sub-contractors and have not experienced any significant disruption to our build programme as a result of the challenging supply chain environment.
He added:
Whilst the net private reservation rate was 2.3% below that reported in the prior year period, this was a particularly active period reflecting both pent-up demand following the initial national lockdown, and increased Help to Buy reservation activity ahead of the tapering of Help to Buy in December 2020 which excluded existing homebuyers and introduced regional price caps for first time buyers.
Updated
Jonathan Gillham, chief economist at PwC, has looked at the broader economic picture, in particular the labour shortages.
The economy bounced back further in August with 0.4% GDP growth driven mainly by a major boost to the tourism and leisure sector. August was the first full month of no Covid restrictions.
However, key sectors of the economy are still struggling notably retail, construction (which has fallen for three of the last four months) and many sectors are being hit hard by supply chain issues. High gas prices are also damaging the economy and there are still issues relating to self isolation that are particularly affecting the parts of the economy that sell goods overseas. If the effects of inflation are stripped out the trade deficit worsened by £1.6bn over the last 3 months.
Acute labour shortages are being reported in professions such as: welders, events staff, industrial workers, automotive workers, engineers, upholsterers, builders, care workers, factory workers, cleaners, accountants, chefs, and security staff. But also, many people are still searching for work - available skilled workers are not aligned with the skills required for the vacancies that businesses are carrying.
Coupled with the spectre of permanent rather than temporary inflation there are mounting risks that could jeopardise the pace at which the UK economy can recover from the Covid crisis.
Paul Dales, chief UK economist at Capital Economics, has also looked at the trade figures:
Product and labour shortages probably contributed to the 2.0% m/m fall in export values and the 0.5% m/m drop in import values, which widened the trade deficit from £2.9bn in July to £3.7bn in August.
If both export and import volumes were unchanged in September, exports will have fallen by 2.3% q/q in Q3 as a whole and imports will have risen by 3.5% q/q. That suggests net trade will have swung from adding 1.0 percentage point (ppt) to the quarterly rate of real GDP growth in Q2 to subtracting 1.6 ppts in Q3.
We suspect shortages will be a bigger drag on GDP in September and October – the petrol crisis probably prevented some people from getting to work. We don’t expect GDP to rise much in the coming months, before accelerating from mid-2022 and into 2023. In Q3, GDP may have risen by 1.4% q/q. That would be weaker than the 2.1% q/q rise the Bank of England forecast in September.
Here is our full story on the UK economy.
UK economic growth picked up in August after an unexpected fall in July as bars, restaurants and festivals benefited from the removal of most remaining pandemic restrictions, reports our economics correspondent Richard Partington.
The Office for National Statistics (ONS) said gross domestic product rose by 0.4% in August as consumers increased their spending on leisure during the first full month without Covid controls in England.
However, the ONS cut its growth estimate for July from a rise of 0.1% to a fall of the same amount after fresh economic data revealed a worse hit for car manufacturing caused by global supply chain problems and microchip shortages.
Brexit and Covid-related shortages weigh on UK trade
Turning to UK trade…
Britain’s trade deficit widened to £3.7bn in August, from £2.9bn in July, worse than expected, with Brexit- and Covid-related shortages holding back exports. But the trade gap excluding erratic items was £1.4bn in August, narrower than July’s £2bn.
Total imports of goods, excluding precious metals, fell by 3.1% in August, driven by a 5.6% fall in imports from non-EU countries, while imports from the EU fell 0.5%, today’s figures from the ONS showed.
While imports from non-EU countries continue to be higher than from EU countries, the gap is now at its narrowest since the end of the Brexit transition period, the ONS said.
Total exports of goods, excluding precious metals, fell by 4.6% in August because of a 4.3% fall in exports to the EU, and a 5% fall in exports to non-EU countries.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said:
UK exporters still are struggling to benefit fully from strong global demand for goods, largely due to Brexit and Covid-related shortages. The volume of goods exports was around 17% below its 2019 average, and 3.5% below their 2020 average. This implies that UK exporters have lost market share; data from the CPB Netherlands Bureau show that real goods exports of advanced economies in July were 1.5% above their 2019 average.
Meanwhile, services exports are in a poor state too; August’s £24bn figure was significantly below its average 2019 level, £27.3bn. This weakness largely is due to the pandemic. Nonetheless, Brexit likely also is having an impact; the most recent breakdown for services exports for Q2 showed that financial services still were around 10% below their pre-Brexit level.
Net trade probably will weigh on UK GDP growth over the next two years. Timely data point to a continued underperformance of U.K. exports; the new export orders balance of the UK manufacturing PMI remained below the Eurozone’s for the ninth consecutive month in September.
Further ahead, disruption in China in the wake of the Evergrande debacle will be an additional headwind to growth in goods exports. The structural deficit in services trade, meanwhile, will re-emerge once British holidaymakers start travelling again. And the UK’s deficit in oil trade, as well as in electricity and natural gas, likely will grow over the coming months.
Updated
James Smith, developed markets economist at ING, said:
The UK economy may have weathered the Delta Covid-19 wave better than we’d feared, but the recovery is nevertheless slowing. This is one of the reasons why we think the Bank of England will wait until 2022 before hiking - but perhaps more importantly - it implies markets may be wrong to price interest rates at 1% or higher in the next few years.
On the face of it, August was only a little better than July for the UK economy – at least compared to the bumper growth of the second quarter. 0.4% growth in August followed a 0.1% contraction in July, and means that the overall third-quarter GDP figure is set to come in around half the Bank of England’s 3% forecast.
Having said that, the underlying details offer a slightly brighter picture. Activity in hospitality and recreation/culture is essentially back to pre-virus levels... The recent retracement in retail activity is less a reflection of Covid consumer caution, and more a simple rebalancing of spending back towards services.
Updated
August GDP rises but the economy can’t rely on happy campers to provide a feel good factor, said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
Festivals fans enjoying new found freedom in August and strong campsite bookings helped lifted economic output, with the arts entertainment and recreation sector growing by 9%.
But the economy can’t rely on happy campers to sustain growth, given the storm clouds that have gathered over supply chains since the summer.
It’s likely that the 0.4% growth in economic output overall in August was partly put due to the mini bounce back from the pingdemic which pushed a million people into self isolation in July. Weakness is seeping through these figures especially in the construction sector which shrank again for the fourth month in a row, by 0.2%. Widespread reports of raw material shortages is likely to have been partly to blame, as well as the difficulties of getting boots on the ground in building sites as sectors fight for skills, with 1.1 million vacancies opening up between July and September.
Output was still estimated to be 0.8% below pre-pandemic levels in August, and the price rises, fuel shortages and labour shortages are potholes in the road which are likely to have put a brake on growth in September.
It certainly won’t be an easy ride for Bank of England policy makers when they meet next to decide when to raise interest rates. Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating.
Updated
The National Institute of Economic and Social Research, a think tank, has tweeted about the latest GDP figures, with a fuller analysis to follow.
@JuliaKollewe https://t.co/tFVJ651uO2
— National Institute of Economic and Social Research (@NIESRorg) October 13, 2021
ample room for future catch-up in future too. Elsewhere a further fall in #construction output may have been down in part to a reported increase in input costs: something likely to affect the #economy more broadly if #shortages lead to more generalised price...
— National Institute of Economic and Social Research (@NIESRorg) October 13, 2021
2/3
rises over the autumn. The coming months could see something of a two-speed recovery, with #sectors most affected by #shortages in decline while others continue to recover
— National Institute of Economic and Social Research (@NIESRorg) October 13, 2021
3/3
Watch this page as our full analysis will be out later today 📊📉👇#NIESRGDPhttps://t.co/bZNRe8anIT
Updated
European stock markets have opened lower.
- UK’s FTSE 100 index down 32 points, or 0.45%, at 7,098
- Germany’s Dax flat
- France’s CAC down 0.2%
- Spain’s Ibex down 0.4%
- Italy’s FTSE MiB down 0.4%
Air transport continued to expand as travel restrictions were relaxed, expanding by 27.5% in August – still 75% below its pre-pandemic level. Rail transport also saw strong growth, of 18.1, but remains 37.7% below its pre-Covid level, the ONS said.
Updated
Stronger services was the main reason why UK growth picked up in August, but all sectors of the UK economy remain below their pre-pandemic level.
Updated
People socialised more in August, with restaurants and hotels growing 10.3%, and arts and entertainment up 8.5%, according to the ONS data. This more than offset a 1.6% fall in wholesale and retail, and a 4% decline in health, due to fewer GP visits and coronavirus vaccinations, noted Paul Dales at Capital Economics.
But there were also some signs that shortages are at least continuing to restrain activity if not worsening. Admittedly, the 6.6% m/m rise in car production was the second increase in a row and suggests that the semiconductor shortages may be easing.
But the 0.2% m/m decline in construction output was the third drop in four months and is probably due to materials shortages. Such drags may have become more widespread and significant in September and October, with the fuel crisis preventing some people from getting to work. Our activity indicator suggests that GDP may not have increased at all in September.
In Q3 as a whole, GDP may have risen by around 1.4% q/q. That would be weaker than the 2.1% q/q rise the Bank of England expected in September. So while the chances of an interest rate hike this year have recently risen, a weaker activity outlook means it’s not a done deal.
Introduction: UK economy picks up after July drop
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The UK economy grew by 0.4% in August, but GDP remains 0.8% below its pre-pandemic level in February 2020, according to the Office for National Statistics. The monthly gain is slightly less than the 0.5% rise economists had pencilled in, but a noticeable pick-up from July, when GDP slipped by 0.1%.
The GDP number for July has been revised from 0.1% growth to a 0.1% fall following five consecutive months of growth, mainly “because of downwardly revised data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured”.
The service industries grew by 0.3% in August, bouncing back from a 0.1% drop in July, while manufacturing expanded by 0.5% following July’s 0.6% decline.
Overall production output climbed 0.8%, accelerating from July’s 0.3% rise, as crude oil and natural gas extraction bounced back following a temporary closure of oil field sites for planned maintenance. Construction continued to shrink, by 0.2%, and is now 1.5% below its pre-pandemic level.
In the three months to August, the economy grew by 2.9%, against forecasts of 3% growth.
Paul Dales, chief UK economist at Capital Economics, said.
The improvement in August probably had a lot to do with the fading of the restraint from July’s “pingdemic”, which at one point meant more than 1m people were self-isolating.
And the recent broadening in shortages and the fuel crisis may mean that growth has come to a near-standstill since August.
GDP grew 0.4% in August but remains 0.8% below its pre-coronavirus peak of February 2020:
— Office for National Statistics (ONS) (@ONS) October 13, 2021
▪️ services grew 0.3% (0.6% below February 2020)
▪️ manufacturing grew 0.5% (2.4% below February 2020)
▪️ construction shrank 0.2% (1.5% below February 2020)
➡️ https://t.co/IsnRXaU5wN pic.twitter.com/yvlbOZ2J97
Victoria Scholar, head of investment at Interactive Investor, tweeted:
UK Aug #GDP
— Victoria Scholar (@VictoriaS_ii) October 13, 2021
+2.9% 3M/3M vs est. 3%
+0.4% M/M v est. 0.5%
+6.9% Y/Y v est. 6.7%
Services output +7.3% Y/Y v est. 6.2%
Industrial output +0.8% M/M vs est. 0.2%
Manufacturing output +0.5% M/M v est 0%
Construction output -0.2% M/M v est +0.1%
GBP initial spike reverses lower pic.twitter.com/1elvdCi4rD
The ONS has also released trade data – we’ll take a closer look in a minute.
Total underlying goods imports fell £1.3bn in August, driven by a £1.2bn fall in imports from non-EU countries
— Office for National Statistics (ONS) (@ONS) October 13, 2021
Total underlying goods exports fell £1.3bn due to a £0.6bn fall in exports to the EU and a £0.7bn fall to non-EU countries https://t.co/svM5XjT4Fm pic.twitter.com/cGVR5ghGYs
In China, export growth unexpectedly picked up in September, new data showed, despite power shortages, supply bottlenecks and a resurgence of Covid-19 cases. Outbound shipments jumped 28.1% from a year earlier, up from 25.6% growth in August, while economists had expected an easing to 21%. They are still expecting export growth to slow in months to come, amid falling global demand for durable goods.
Shares were mixed in Asia, with Japan’s Nikkei down 0.2% and Hong Kong’s Hang Seng losing 1.4% while the Shanghai composite index gained nearly 0.3% and South Korea’s Kospi was up almost 1%.
Later today, we’ll be getting US inflation data and the minutes of the US Federal Reserve’s last meeting.
The Agenda
- 7am BST: UK GDP and trade for August
- 7am BST: Germany inflation for September (final)
- 10am BST: Eurozone Industrial production for August
- 1.30pm BST: US inflation for September (forecast: 5.3%)
- 2pm BST: UK NIESR Monthly GDP tracker for Q3
- 3.30pm BST: Bank of England deputy governor for financial stability Sir Jon Cunliffe speech
- 7pm BST: US Federal Reserve minutes
Updated
