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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK mortgage approvals hit six-month low; pandemic recovery faster than expected – as it happened

United Kingdom United States Economy Office for National Statistics GDP
The skyline of the City of London financial district, seen from St Paul's Cathedral.
The skyline of the City of London financial district, seen from St Paul's Cathedral. Photograph: Neil Hall/Reuters

Closing summary

Time to recap….

The UK economy made a faster recovery from the Covid pandemic than previously estimated, according to revisions to official data this morning.

Revised figures from the Office for National Statistics (ONS) showed gross domestic product was 1.8% above pre-pandemic levels at the end of the second quarter this year, stronger than Germany and France.

The changes mean the UK economy is no longer the worst performer in the G7.

Growth in January-March was also revised up, to +0.3% from a previous estimate of 0.1%.

But the UK housing market is cooling, with mortgage approvals falling in August to their lowest level in six months.

The Bank of England said net mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August and were down by a third from the same month last year.

It was the lowest number of home loans approved by lenders since February this year, and the latest sign that the 14 increases in UK interest rates since December 2021 have undermined the demand for homes.

Inflation in the eurozone has dropped to a two-year low…

… as has the core PCE measure of US price changes.

The pound is on track for its worst month against the US dollar in a year – down 3.8%, or almost 5 cents, at $1.219 this afternoon.

UK households have been warned that energy bills could climb to an average of almost £1,900 a year in the coldest months of the year, under the UK government’s energy price cap scheme.

Severn Trent customers face a 37% jump in bills by the end of the decade, as the utility also raises £1bn in investment – half from Qatar’s sovereign wealth fund – to pay for a multibillion investment plan to improve its water network over the next five years.

UK households are facing the biggest increase in taxes over a parliament in at least the last 70 years:

But partners at Deloitte will be cushioned by rising incomes, with the average pay for more than 640 equity partners in the UK rising to £1.1m this year.

The Paris public prosecutor’s office is investigating financial transactions allegedly involving the French billionaire Bernard Arnault and a Russian businessman.

A week of disruption for rail passengers has begun, with a mix of strikes and overtime bans by train drivers and tube workers set to halt and delay many services until next Friday.

And Netflix is sending its final DVDs to American customers today

Have a lovely weekend, we’ll be back on Monday… GW

One final piece of economic news to wrap up the week…. and US consumer confidence has improved slightly this month.

However, Americans remain unsure about the future of the economy, with risks of a US government shutdown this weekend.

The University of Michigan’s consumer sentiment index has risen to 68.1 from 67.7 earlier in the month, although still lower than August’s 69.5.

Surveys of Consumers director Joanne Hsu explains:

A small decline in consumer expectations over their personal finances was offset by a modest improvement in expected business conditions. Consumers are understandably unsure about the trajectory of the economy given multiple sources of uncertainty, for example over the possible shutdown of the federal government and labor disputes in the auto industry. Until more information emerges about these developments, though, consumers have reserved judgement on whether economic conditions have materially changed from the past few months.

Year-ahead inflation expectations moderated from 3.5% last month to 3.2% this month. The current reading is the lowest since March 2021 and is above the 2.3-3.0% range seen in the two years prior to the pandemic.

Although GDP tracks changes in the size of the economy, it does not measure important factors, such as poverty or inequality.

And children’s charity Barnardo’s has reported today that more than a million children in the UK either sleep on the floor or share a bed with parents or siblings because their family cannot afford the “luxury” of replacing broken frames and mouldy linen.

The charity says increasing “bed poverty” reflects growing levels of destitution in which low-income families already struggling with soaring food or gas bills often find they are also unable to afford a comfortable night’s sleep.

Acute hardship was forcing families to adopt desperately improvised sleeping arrangements, it says in a report published on Friday. An estimated 700,000 children were sharing beds, while 440,000 children slept on the floor, leaving them tired, anxious and finding it hard to concentrate at school.

Parents and kids were often forced to share a bed, the Barnardo’s research found. Some parents would sleep on sofas or chairs to vacate their bed for their children. Other children would spend the night on mattresses or blankets on the floor, sometimes without sheets or duvets.

More here:

This morning’s improved growth figures means the UK’s national debt is smaller than thought, as a share of the economy.

The Office for National Statistics has published new estimates for key public-sector debt ratios on Friday, after revising up the size of the country’s economy.

Outstanding public sector net debt totalled 97.9% of annual gross domestic product in August 2023, down from an earlier estimate of 98.8%.

The budget deficit for the last financial year was revised down to 5.0% from 5.1%.

Stocks have opened higher in New York, as investors welcome the fall in the Federal Reserve’s favourite inflation measure to a two-year low.

The Dow Jones industrial average has gained 155 points, or 0.46%, in early trading to 33,821 points.

The tech-focused Nasdaq Composite is up 1%.

Transactions involving Bernard Arnault investigated over suspected money laundering

The Paris public prosecutor’s office is investigating financial transactions allegedly involving the French billionaire Bernard Arnault and a Russian businessman.

The prosecutors are investigating transactions involving Arnault, whose ownership of the luxury goods group LVMH has made him the world’s second richest person after Elon Musk, and Nikolai Sarkisov, Reuters reported, citing a statement from the Paris prosecutor’s office. Sarkisov’s brother, Sergei, founded the Russian insurance company Reso-Garantia.

The French newspaper Le Monde first reported the existence of the investigation, citing transactions involving property at the Courchevel ski resort. It cited a December 2022 document from Tracfin, part of France’s justice system focused on combating money laundering, which reportedly lists transactions “which may characterise money laundering”.

A spokesperson forReso-Garantia said that “neither Reso-Garantia, nor Mr Sarkisov personally, has been involved in the transaction that was described in the Le Monde article. Mr Sarkisov and Mr Arnault have never met.”

More here.

Here’s some snap reaction to the drop in US core PCE inflation last month, first from Kathy Jones, chief fixed income strategist at Charles Schwab.

Here’s Art Hogan, chief market strategist at B Riley Wealth Management.

…and Ole S Hansen, head of commodity strategy at Saxo Bank:

US core PCE inflation drops to two-year low

Over in the US, the Federal Reserve’s preferred inflation measure has dropped to a two-year low.

The personal consumption expenditures price index, excluding food and energy, has dropped to an annual rate of 3.9% in August, new data shows, down from 4.2% in July.

That’s the lowest reading for Core PCE since September 2021, and could signal that America’s battle against inflation is still on track.

On a monthly basis, core PCE rose by just 0.1% in August.

The headline PCE inflation rate has risen to 3.5%, from 3.4% in July.

Rishi Sunak’s optimism (see previous post) could be misplaced, if the economy stumbles in the months ahead.

The European economics team at Nomura, for example, fear that a recession could now be more likely.

Here’s their take on this morning’s upgrades to UK GDP:

While that’s a substantial revision, there are plenty of reasons to be cautious in interpreting this news, including the fact that the revision was more limited relative to the scale of moves in GDP at the time, that it’s somewhat historical, that GDP is still underperforming other countries (like the US, Scandies, Australia and NZ, and even Japan – see table below), and that the inflationary (and thereby monetary policy) consequences of the revision might be limited, if one believes that both demand and supply potential have changed at the same time.

What will be more important going forward is whether the recession we expect materialises. Indeed, a recession might even be more likely following these revisions to the extent they suggest post-pandemic catch-up growth is now more complete. That should pull down on inflation and would support our view that the Bank of England is now done tightening policy. It would also support the idea of rate cuts beginning in 2024.

A chart of GDP across major economies

The PM posts:

Bank of England urges lenders to take care on loan default risk

The Bank of England has urged UK lenders not to underestimate the risk of loan defaults as higher inflation and increased interest rates hit more vulnerable borrowers.

In a letter to chief financial officers at financial institutions supervised by the BoE, published online, the central bank also warned them not to overestimate how much money they would recover when borrowers defaulted on loans.

Victoria Saporta, the BoE’s executive director for prudential policy, wrote:

“We encourage further efforts by firms to challenge whether models capture risks associated with affordability, including the impact of higher inflation and interest rates on vulnerable borrowers or sectors.”

Saporta added that default experience has been limited in recent years, so firms need to examine if their post model adjustments (PMAs) are up to speed:

Given higher inflation and interest rates, we believe it is important to challenge recovery assumptions used in loss given default and compensate for model and data limitations through PMAs.

Severn Trent customer water bills to rise by almost 37% by end of decade

Severn Trent is to increase customers’ bills by almost 37% by the end of the decade and has raised £1bn in investment – half from Qatar’s sovereign wealth fund – to pay for a multibillion investment plan to improve its water network over the next five years.

The company, which has 4.2 million customers, said the average annual household bill would rise from £379 in 2024-25 to £518 in 2029-30.

It predicted that by 2030 the cost of a bill would be 1.3% of the disposable income of a typical household in the Severn Trent region, compared with 1.2% today, and attempted to soften the blow by announcing a £550m financial support package for struggling customers.

The company said:

“Severn Trent recognises that while this increase is spread over a long period, today’s announcement comes at a difficult time for some customers.

“That is why we have included a £550m financial support package as a core part of the plan. This will help 693,000 customers pay their bill each year by 2030.”

The company plans to invest a record £12.9bn on its network over the next five years, including £5bn on projects designed to tackle the water industry’s poor environmental record, which it said would create 7,000 jobs across the Midlands region. More here.

Energy bills ‘could hit almost £1,900 annually' in January

Household energy bills could climb to an average of almost £1,900 a year in the coldest months of the year under the government’s energy price cap, according to a leading forecaster.

The energy price cap is expected to climb from an average of £1,834 a year set to take effect from October to just under £1,898 for the months from January to March, according to analysts at Cornwall Insight, in a blow to households hit by the cost of living crisis.

The energy price cap sets the maximum price that suppliers can charge based on the typical gas and electricity bill, meaning a cold winter could push bills higher if households need to keep the heating on for longer. The cap remains more than 50% higher than pre-pandemic levels.

More here:

The Office for National Statistics is pretty clear that its revisions to GDP data are not fixing ‘errors’ – but a natural feature of how national accounts are compiled.

In a blogpost today Craig McLaren, the head of national accounts at the ONS, says:

Collecting and publishing estimates for growth and many other areas of our society and economy were clearly challenging during a once-in-a-century pandemic, which fundamentally shifted all aspects of how our economy functioned.

The revisions performance for the UK economy in normal times compares well with the best in the world. So we are confident that moving forwards both our initial and later estimates for growth will remain a trusted data source for economic policymakers.

McLaren also points out that other statistical bodies have made similar reporting revisions:

Our estimates for growth increased by +1.1 percentage points for 2021, while Spain also increased its by +1.1 percentage points, the Netherlands by +1.3, and Italy also by +1.3.

Updated

Another sign of a cooling UK housing market: the number of house sales fell by 16% in August compared with the same month a year earlier.

That’s according to provisional HM Revenue and Customs (HMRC) figures.

An estimated 87,010 home sales took place across the UK last month, which was 16% lower than in August 2022 but 1% higher than July 2023.

It was the weakest August for house sales since 2020, when the market was dealing with the impacts of the coronavirus pandemic.

Full story: UK economy makes stronger recovery from pandemic than first thought

The UK economy made a faster recovery from the Covid pandemic than previously estimated, according to revisions to official figures revealing a stronger performance than Germany and France.

In a boost for Rishi Sunak before the Conservative party conference in Manchester beginning this weekend, revised figures from the Office for National Statistics (ONS) showed gross domestic product was 1.8% above pre-pandemic levels at the end of the second quarter this year.

In August, the ONS had estimated the economy was still 0.2% below the level at the end of 2019 before the global health emergency triggered one of the deepest recessions on record.

The changes mean the UK economy is no longer the worst performer in the G7. The chancellor, Jeremy Hunt, said:

“We know that the British economy recovered faster from the pandemic than anyone previously thought, and data out today once again proves the doubters wrong.”

More here:

Eurozone inflation hits two-year low

Over in the eurozone, inflation has dropped to its lowest level in two years.

Consumer prices in the eurozone rose by 4.3% in the year to September, the flash estimate from statistics body Eurostat shows.

That’s a sharp fall on August, when prices rose by 5.2% per year, and the lowest reading for eurozone inflation since October 2021.

A chart showing eurozone inflation over the last two years

It was driven by a fall in energy prices, which were 4.7% lower this month than in September 2022.

But, food, alcohol & tobacco is expected to have the highest annual rate in September (8.8%, compared with 9.7% in August).

Services inflation slowed to 4.7% per year, down from 5.5% in August, while goods inflation dropped to 4.2%, from 4.7% per year in August.

This still leaves inflation over double the European Central Bank’s 2% target, but it’s a lot lower than a year ago (inflation was 9.9% a year earlier).

It could encourage the ECB to leave interest rates at their current (record) highs.

Diego Iscaro, head of European economics at S&P Global Market Intelligence, explains:

“The September “flash” estimate shows a larger than expected declines in both headline and core inflation. Base effects played a key role in explaining the sharp fall in inflation, but the figures also suggest that underlying inflationary pressures are becoming less intense.

Rising oil prices pose an upward risk to the immediate inflation outlook, but the expected slowdown in activity over the coming months should help to offset some of this impact.”

The figures reinforce the view that interest rates have likely reached their peak in the current tightening cycle. Excluding an acceleration in underlying inflationary dynamics over the coming months, the focus will now switch to the duration for which the current level of rates will be maintained. We currently expect the first cut in rates to materialise in June 2024.

Updated

Here’s Alice Haine, personal finance analyst at Bestinvest, on this morning’s UK mortgage figures:

“Mortgage approvals plunged 8% in August, as high mortgage rates caused major affordability challenges for buyers. Net approvals for remortgaging, which capture remortgaging with a different lender, also saw a significant decline as more homeowners stuck with their existing lender rather than switch to a new provider to avoid affordability checks.

While mortgage lending edged up for the fourth consecutive month, the decline in mortgage approvals – a forward-looking indicator – signalled that mortgage lending is likely to remain weak in the final months of this year as cost-of-living pressures and high borrowing costs make it harder for buyers to secure the homes they want. However, there is a hint of optimism in the air with estate agents reporting a rise in enquiries.

The Bank of England’s latest mortgage data suggests further weakness ahead in the property sector, as higher interest rates continue to weigh heavily on lending.

Capital Economics explains:

The interest rate on newly drawn mortgages increased by another 16 basis points, from 4.66% to 4.82%.

And the further rise in average quoted mortgage rates to 5.7% in August, which takes a few months to feed through to actual mortgage rates, suggests more weakness in housing activity and prices lies ahead.

UK mortgage approvals hit six-month low

Newsflash: UK mortgage approvals have fallen to their lowest level in six months, as high interest rates cool the housing market.

The Bank of England reports that net mortgage approvals for house purchases fell from 49,500 in July to 45,400 in August.

That’s the lowest number of home loans approved by lenders since February this year, and the latest sign that the 14 increases in UK interest rates since December 2021 have hit demand.

Net approvals for remortgaging (which only capture remortgaging with a different lender) saw “a significant decline” from 39,300 in July to 25,000 in August, the lowest since July 2012, the Bank says.

A chart showing UK mortgage approvals

A report earlier this week showed that the number of first-time buyers in the UK has fallen by more than a fifth, as the jump in mortgage costs made it too expensive for some people to get onto the housing ladder.

Estate agent Knight Frank have updated their forecast for UK house prices, and now expect a larger fall this year.

They say:

  • Knight Frank now expect UK house prices to fall by 7% this year, more than our forecast of -5% in March

  • Next year, Knight Frank expect prices to fall by 4%, less than the 5% we forecast earlier this year

  • Forecasts for prime central London remains unchanged, but expect a slightly smaller fall (-3% rather than -4%) this year in prime outer London and a marginally stronger recovery from 2026

Just in: UK average mortgage rates continue to drop, as lenders offer better deals amid hopes that the Bank of England has ended raising interest rates.

Data provider Moneyfacts reports that:

  • The average 2-year fixed residential mortgage rate today is 6.48%. This is down from an average rate of 6.50% on the previous working day.

  • The average 5-year fixed residential mortgage rate today is 5.98%. This is down from an average rate of 5.99% on the previous working day.

Today’s GDP data is full of interesting nuggets.

And one is that UK household disposable incomes grew faster than inflation in April-June, having stagnated in January-March due to fast-rising prices.

Real households’ disposable income (RHDI) grew by 1.2% in Quarter 2, the ONS reports.

Household savings also increased in the quarter, which suggests that spending did not rise in line with this pickup in RHDI.

Sandra Horsfield, economist at Investec, explains:

Meanwhile, data for Q2 GDP broken down by sector, published for the first time today in accordance with the typical release cycle, revealed that household disposable income growth exceeded inflation, meaning there was a 1.2% quarterly increase in real terms – not least thanks to the rise in benefit payments in line with past inflation.

Consumption growth did not keep pace with this rise, meaning the household saving ratio jumped from 7.9% in Q1 to 9.1% in Q2.

Stocks have opened higher in London, as the upgraded UK GDP data brings some cheer to the City.

The FTSE 100 index is 41 points higher (+0.5%) at 7643 points, taking its gains this month to +2.8% – outperforming Wall Street which is in the red for September.

Retail chain JD Sports (+5.8%) is leading the risers, followed by online grocery group Ocado (+4.2%) and specialty chemicals maker Croda (+2.6%).

Neil Wilson of Markets.com says a “messy” September is coming to an end, with the FTSE 100 benefiting from higher oil prices:

BP and Shell have rallied 10% through September as crude broke to its highest in a year this month.

Elsewhere the seasonal weakness of September asserted itself once more – the S&P 500 and Nasdaq slipping around 5%, whilst the DAX and broader European equities ex-UK are down about 3%.

The DAX has fallen about 4% in the quarter, but still +10% YTD, whilst the S&P 500 is roughly 3% lower in the quarter and +12% YTD. Bonds clearly blown up a bit this month and the dollar and oil have risen sharply once more. WTI +30% QTD is the best quarter since Q1 2022.

Victoria Scholar, head of investment at interactive investor, sums up this morning’s UK economic report:

“The UK economy grew by 0.2 percent in the second quarter following growth of 0.3% in the first quarter which was revised higher from 0.1%. Growth in the latest quarter was driven by a 1.2% increase in the production sector as falling input prices relieved pressure on manufacturers. Real households’ disposable income grew by 1.2% in the quarter and the household savings ratio grew by 9.1%.

GDP is now estimated to be 1.8% above pre-coronavirus levels. Following recent revisions, the UK is no longer at the bottom of the leaderboard in terms of the recovery of advanced economies since covid. Now it is understood to have grown faster than Germany and France at 0.2% and 1.7% respectively. It has been a shock turn of events that the narrative around the UK’s sluggish post covid recovery has been completely flipped on its head because of statistical revisions.

Chancellor Jeremy Hunt said the UK GDP data out today once again proves the doubters wrong.

Despite this, the pound is on track for its worst month in a year since the mini-Budget turmoil in 2022. The depreciation has been driven by demand for US dollars amid expectations of ‘higher for longer’ interest rates as well as risk-off sentiment in the markets.

There are also growing concerns about the risk of a UK economic slowdown or even a recession in the months ahead, dampening demand for sterling, as elevated inflation and higher interest rates take their toll.”

Pound lifted by GDP upgrade

The news that Britain’s economy has recovered faster than thought has given the pound a much-needed lift.

Sterling is up half a cent this morning at $1.225, which is a cent and a half above the six-month low hit on Wednesday.

However, that still leaves the pound on track for its worst month in a year (see opening post for details), down almost 3.5% in September.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, explains:

“The UK economy has shown signs of life. GDP is now 1.8% ahead of pre-pandemic levels as the economy grew 0.2% in the second quarter from the first three months of the year. Crucially, GDP was up 0.6% from the same period the previous year, which was better than expected and has given the pound a shove in the right direction.

A particular area of strength has been manufacturing, especially motor vehicles. While momentum is overall positive, these levels of growth aren’t exactly shooting the lights out. Higher interest rates are playing their part in turning the nation’s economic thermostat down and this will play a key role in upcoming interest rate decisions.

This morning’s snapshot of economic data is not significant enough to change the overall picture of a flatlining economy, fears Jake Finney, economist at PwC.

Finney explains:

Output is only 0.4% higher than where it was at the same time a year ago. If anything, the GDP data revisions may marginally dampen the UK’s growth prospects for 2023 and 2024 as they reduce the potential for bounce-back growth.

“Ultimately we expect that growth will remain sluggish while monetary policy tightening continues to weigh on activity. We expect annual GDP growth to remain significantly below trend this year and next. While the surprise -0.5% decrease in July alongside the PMI survey data suggests we may see a slight contraction in Q3.”

Economic forecasting group the EY Item Club also fears that the UK’s economic prospects look ‘sluggish’, despite this morning’s welcome news that the recovery has been stronger than thought.

Martin Beck, chief economic advisor to the EY ITEM Club, says:

“Notwithstanding more momentum than thought in H1 2023, the EY ITEM Club think the economy will see only marginal growth over the rest of this year and into 2024.

A rising number of households are seeing a jump in mortgage payments, still-high inflation, and frozen tax brackets mean fiscal drag is eroding spending power and the jobs market is weakening – threatening consumer confidence. On the other hand, falling inflation means real wages have started to rise again and interest rates look to have peaked much lower than many had feared only a few months ago.

As a result, the EY ITEM Club thinks that while growth is set to be weak, a serious downturn should be avoided.”

Capital Economics: UK still heading for 'mild recession'

Despite Jeremy Hunt’s optimism, Capital Economics’ deputy chief UK economist, Ruth Gregory, argues that overall, today’s release changes very little.

She told clients this morning:

The final Q2 2023 GDP data release shows that the economy was a bit more resilient in the first half of this year than we previously thought. But other indicators suggest this is now fading. We still think that higher interest rates will trigger a mild recession involving a 0.5% fall in GDP in the coming quarters.

The data leaves the economy still only 0.6% above its level a year ago, Gregory points out, adding:

It does not change the big picture that the economy has lagged behind all other G7 countries aside from Germany and France since the pandemic. And that’s before the full drag from higher interest rates has been felt.

Hunt: UK recovering faster than anyone previously thought

Chancellor of the Exchequer Jeremy Hunt has hailed the news that the UK has grown faster than Germany and France since 2020.

He’s also repeated a recent theme that the ‘doubters’ are being proved wrong by the latest upward revision to UK economic data, saying:

“We know that the British economy recovered faster from the pandemic than anyone previously thought and data out today once again proves the doubters wrong.

We were among the fastest countries in the G7 to recover from the pandemic and since 2020 we have grown faster than France and Germany.

“The best way to continue this growth is to stick to our plan to halve inflation this year, with the IMF forecasting that we will grow more than Germany, France, and Italy in the longer term.”

Updated

UK recovery from pandemic faster than thought

The UK economy’s recovery from the Covid-19 pandemic has been faster than previously thought, today’s updated GDP data shows.

UK GDP is now estimated to be 1.8% above pre-pandemic levels by the second quarter of this year, the Office for National Statistics reports.

That’s a stronger recovery than Germany (whose economy is 0.2% larger than in Q4 2019) and France (1.7% larger).

But, it still leaves the UK behind the US, Canada, Italy and Japan, as the table at 7.48am shows).

Back in August, the ONS thought the UK economy was still 0.2% smaller than its pre-pandemic levels.

This will cheer the government, as ministers prepare to head to Manchester for the Conservative party conference.

Bloomberg says:

The UK economy is larger than previously thought, new figures show in a boost for Prime Minister Rishi Sunak days before his Conservative Party begins its annual conference.

The upward revision announced by the Office for National Statistics Friday means Britain is no longer lagging every other major industrial nation in its recovery from the pandemic. Germany and France now is at the bottom, with the UK third to last.

Updated

Today’s GDP report shows that the UK economy grew faster than other G7 rivals in 2022 (with growth revised up from 4.1% to 4.3%), and also in 2021 (with 8.7% growth).

A chart showing G7 GDP
A chart showing G7 GDP Photograph: ONS

Remember, that follows the 10.4% fall in UK GDP in 2020 during the first year of the Covid-19 pandemic.

UK economy stronger than earlier thought

Britain’s economy has grown faster than previously thought this year, new data just released by the Office for National Statistics shows.

The latest UK GDP quarterly national accounts shows that the economy grew faster than expected at the start of this year.

UK GDP is now estimated to have increased by 0.3% in the January-March quarter, the ONS says, up from an earlier estimate of just 0.1% growth.

Growth was also faster than expected last year, GDP is now estimated to have increased by 4.3% in 2022, revised from a first estimate of 4.1%.

A chart showing UK GDP

Q2’s data was unrevised, though – still showing 0.2% growth.

These changes follow earlier revisions from the ONS at the end of August, which showed the UK economy shrank less and bounced back faster during the pandemic.

ONS chief economist Grant Fitzner says:

“Today’s latest figures show the GDP growth rate is almost unrevised over the last 18 months.

“Our new estimates indicate a stronger performance for professional and scientific businesses due to improved data sources.

“Meanwhile, healthcare grew less because of new near real-time information showing the cost of delivering services.”

Introduction: Pound on track for worst month in a year

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

The pound is heading towards its worst month since the turmoil of last year’s mini-budget, amid hopes that UK interest rates may have peaked, and fears that a recession could be looming.

With just one trading day to go, September has been a poor month for sterling. The currency has shed four and a half cents against the US dollar, or 3.5%, this month to just over $1.22 this morning.

That would be the worst performance in 12 months, since panic over Liz Truss’s plan for unfunded tax cuts a year ago sent sterling reeling to a record low.

So what has caused the pound’s weakness, sending it to a six-month low this week.

One reason is concerns that the UK economy could stagnate, or worse, in the coming months, with the eurozone economy also appearing to weaken.

Matthew Ryan, head of market strategy at global financial services firm Ebury, explains:

“Both the euro and sterling have slumped to six-month lows on the US dollar this week. While the moves can be largely attributed to a strong greenback, both currencies are currently underperforming their G10 counterparts. Aside from valuation, concerns over the state of both economies have contributed to the sell-offs.

Economic news out of the UK, in particular, has turned decidedly bleak in recent weeks. Last week’s business activity PMIs and retail sales reports both missed economists’ expectations, and Citigroup’s UK economic surprise index is now teetering just above the level of 0, and its lowest level since March.

Another factor is a repricing of interest rate expectations. With inflation falling in July and August, the Bank of England is no longer expected to raise borrowing costs several more times. UK interest rates may even have peaked.

But across the Atlantic, the Federal Reserve is expected to push US interest rates higher before the end of the year, and keep them higher for longer than previously expected.

That ‘higher for longer’ theme has dominated markets this month, sending the US dollar to 10-month highs against a basket of currencies, and weakening government bond prices.

September is often a weak month for equities, and so far this month the US S&P 500 index is down almost 5%, while the tech-focused Nasdaq has lost 6%.

Britain’s FTSE 100 is up 2%, partly lifted by energy companies as the oil has also risen this month.

The agenda

  • 7am BST: UK Q2 GDP (final estimate) and economic accounts

  • 9.30am BST: UK mortgage approvals figures for August

  • 10am BST: Eurozone inflation flash estimate for September

  • 1.30pm BST: US PCE measure of inflation

Updated

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Michael Jackson’s three children and his mother have been blocked from receiving funds from the late singer’s trust until a hefty tax bill has been settled.
Evening Standard
Evening Standard
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