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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK GDP: Economy avoids recession despite weakest growth in a decade – as it happened

Construction of the Deansgate Square development in Manchester.
Construction of the Deansgate Square development in Manchester. Photograph: Christopher Thomond/The Guardian

Finally, the FTSE 100 index of top UK shares has closed 30 points lower at 7,328.

Multinationals and major exporters were hit by the strengthening pound, although banks and house builders held onto their gains.

Updated

Construction was one of the bright spots in the UK economy in the last quarter, growing by 0.6%.

But economic uncertainty threatens to pull the sector back again.

Clive Docwra, Managing Director of construction consulting and design agency McBains, explains;

“These latest figures reflect the uncertainty the sector is currently experiencing.

They show an increase in new work over July to September, and in particular higher than expected increases in housing, commercial and industrial new work, but a slowdown in September itself.

We expect this slowdown to continue over the next few months, especially given last month’s confirmation of a further delay in Brexit.

“Business and investors hate uncertainty, so the continuing saga of if and when the UK leaves the EU, plus the added unpredictability of the general election, means there will be a continued reluctance to commit funding to new projects.

“We also need to see the major parties make strong policy commitments to boost the housebuilding programme, which is failing to deliver the number of homes required to meet the housing shortage.”

Business owners from construction, manufacturing and TV have told us how they’re coping through the slowdown:

Shares in UK banks and housebuilders are rallying in London, as fears of a hung parliament recede a little.

Royal Bank of Scotland and Lloyds Banking Group have both gained over 4%, as have building firms Persimmon and Barratt Development.

Traders are calculating that Boris Johnson is strengthened by the Brexit Party’s decision today not to challenge Conservative candidates in seats they won two years ago.

The pound is still holding its earlier gains, at six-month highs against the euro.

But there’s still several weeks of electioneering to come, so plenty of time for twists and turns.

Seema Shah, chief strategist at Principal Global Investors, explains:

“All eyes must now be on the Liberal Democrats. Will Farage’s move incite a mirror image reaction from the Liberal Democrats, potentially stepping aside in order to increase Labour’s chances and “take the fight” back to the Conservatives? As we approach the December 12 elections, investors should anticipate conflicting headlines, with currency moves perhaps disproportionate to the overall impact.

Sterling is now at the whim of headline risk which, as Christmas approaches, waning market liquidity will exacerbate.”

Back on GDP.... Chris Giles of the Financial Times has done some impressive number crunching, to prove a couple of important points.

1) The growth rate of the UK economy has been slowing, slowly but steadily, over the last seventy years.

2) The UK lagged behind major rivals in the post-war period, before closing the gap after joining the European Common Market....

Updated

Over in New York, stocks have opened lower.

The Dow Jones industrial average has dropped by 139 points, or 0.5%, to 27,541. Trade war jitters are pulling Wall Street away from last Friday’s record closing high.

The broader S&P 500 index, and the tech-focused Nasdaq, are both down around 0.5%.

Investors are disappointed that Donald Trump denied agreeing to lift some tariffs on China last week, to help secure a Phase One trade deal.

Jingye has issued a statement, saying it plans to invest £1.2bn in British Steel over the next decade.

It also promised to make job offers to “as many employees as possible” across the group....

British Steel taken over by China's Jingye Group

British Steel’s Scunthorpe plant in north Lincolnshire.
British Steel’s Scunthorpe plant in north Lincolnshire. Photograph: Lindsey Parnaby/AFP via Getty Images

Newsflash: British Steel has been saved from closure, after a Chinese industrial giant agreed to buy the company’s assets.

Jingye Steel is lifting British Steel out of liquidation, a move that could save thousands of jobs at sites including its blast furnace in Scunthorpe.

Here’s the official announcement from the Official Receiver:

The Official Receiver and Special Managers from EY can confirm that a sales contract has been entered into with Jingye Steel (UK) Ltd and Jingye Steel (UK) Holding Ltd (together, Jingye), to acquire the business and assets of British Steel Limited (BSL), including the steelworks at Scunthorpe, UK mills and shares of FN Steel BV, British Steel France Rail SAS and TSP Engineering.

The sale also includes the shares owned by BSL in Redcar Bulk Terminal Limited.

Completion of the contract is conditional on a number of matters, including gaining the necessary regulatory approvals. The parties are working together to conclude a sale as soon as reasonably practicable.

The business will continue to trade as normal during the period between exchange and completion. Support from employees, suppliers and customers since the liquidation has been a critical factor in achieving this outcome.

This move, if approved, would end six months of uncertainty, since British Steel fell into liquidation in May.

Britain’s growth was even slower once you adjust for population increases.

This chart shows how growth on a per capita basis has been weak in recent quarter (data here).

UK GDP per capita
UK GDP per capita Photograph: ONS

By my rough maths, GDP-per-capita only rose by 0.2% in the last quarter, slower than the headline increase of 0.3%.

Officially, GDP-per-capita overtook its pre-crisis levels in 2015.

But... Alfie Sterling of the New Economics Foundation has calculated that living standards are still below 2008 levels, once you adjust for consumer price inflation [rather than using the ‘price deflator’ used by the ONS to remove the impact of rising prices on GDP].

More here.

Sajid Javid is correct when he says that Britain is expected to grow faster than Japan, Italy and Germany in 2019 and 2020.

But that’s hardly impressive. Italy has been stagnating for years, Germany will probably tumble into recession on Thursday, and Japan’s export-driven economy has been hurt by the US-China trade war.

Javid: Brexit uncertainty isn't helping

UK chancellor Sajid Javid
UK chancellor Sajid Javid today Photograph: Sky News

UK chancellor Sajid Javid has insisted that the UK economy is in good shape, despite annual growth slowing to a nine-year low.

But he’s also cited ongoing uncertainty over Britain’s departure from the EU.

Javid told reporters:

Over the last nine years since the Conservatives have been back in office we’ve seen nine consecutive years of growth.

The chancellor cited “record high unemployment” and real wages growth, adding:

These are all good signs of the fundamental strength of the economy.

Q: But annual growth is now the weakest since 2010....

Javid blames “global factors”, pointing out that the IMF expect Britain to grow faster than Germany, Italy and Japan over the next couple of years.

We are doing better than many of our competitors....

Here at home there are factors at play, and the number one issue is around uncertainty, around Brexit.

Full story: UK avoids recession but Brexit uncertainty damages growth

Here’s my colleague Phillip Inman on today’s growth figures:

The British economy has avoided recession after officials figures showed it grew 0.3% in the third quarter of the year.

The GDP data for July to September from the Office for National Statistics showed the UK returned to growth after a dip of 0.2% between April and June. A technical recession is defined by two successive quarters of negative growth.

There were fears that Brexit uncertainty could have pushed the economy into further negative growth, but Britain’s services sector – which encompasses a range of industries from movie production to banking and IT – performed strongly enough to push the UK into positive territory.

Britain’s attraction as a centre for film production was one of the main drivers of growth, as it has been over the past two years, the ONS said. Spending on IT accelerated as firms upgraded their computer systems and improved online services to their customers.

Here’s his full story:

Nigel Farage’s decision not to run Brexit candidates in Conservative constituencies has also lifted the pound to a six-month high against the euro, at €1.168.

The pound vs the euro
The pound vs the euro Photograph: Refinitiv

Traders are calculating that a hung parliament is now less likely.

Neil Wilson of Markets.com explains:

The pound is stronger since a clear, decisive election win for the Conservatives will provide clarity on Brexit – anything else becomes messy.

This is a big boost to the Conservative Party as the Brexit Party had talked about fielding 600 candidates. It changes the electoral map. Mr Farage seems to have been persuaded by Boris Johnson’s commitment not to extend the transition period beyond December 2020. Mr Farage and everyone else knew it would have been crazy politics for the Brexit Party to take Leave votes away from the Tories and enable a pro-Remain grouping to take seats.

The Brexit Party will however contest Labour and other pro-Remain parties. It’s a massive moment for the campaign and gives the Tories a clear run at Downing Street. But it will not make it any easier to hoover up seats from opposition parties – the risk of the Brexit Party sucking in Leaver votes in areas being targeted by the Tories remains. For Labour and in particular the Lib Dems in the south of England, it’s going to make life very hard to dislodge incumbent Tories.

Updated

Pound rallies as Farage announces Leave alliance

Back in the City, the pound has just jumped to a one-week high.

Sterling had already been lifted by the news that Britain had avoided recession.

But the rally has accelerated in the last few minutes, as Brexit Party leader Nigel Farage announced he won’t contest the 317 seats which the Conservative party won in 2017.

The pound is up a cent today, at $1.288.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

Farage’s move could be a significant boost to Boris Johnson’s chances of winning a majority in next month’s general election.

But, he’s not (yet anyway) pledged to withdraw from Tory target seats....

Our Politics Live blog has all the details:

Updated

Worryingly, business investment has fizzled out in the last couple of year.s

The ONS reports that it was flat in the last quarter alone, but has shrunk in five of the last eight quarters:

UK business investment
UK business investment Photograph: ONS

Britain’s economy is now paying the price of years of austerity, argues TUC General Secretary Frances O’Grady:

“A decade of cuts and under-investment has slammed the handbrake on economic growth.

“When Britain needed rebuilding after the crash the Conservatives opted for austerity and tax breaks for big business.

“Working families paid the price for these political choices. They deserve better.”

Britain’s economy benefited from a boom in UK-based film and TV production in the last quarter, the ONS says.

That helped the wider information and communication industry to grow by 0.8% in the last quarter, nearly three times faster than the wider economy.

Berenberg: Brexit uncertainty has pulled growth down

Kallum Pickering of German bank Berenberg has crunched today’s GDP data, to show that UK growth has fallen steadily since the EU referendum

Intensifying Brexit uncertainties over the last three years have gradually eroded the UK’s underlying growth momentum. After averaging 0.6% in 2015, the average quarterly pace of growth has slowed each year since then. Down from 0.38% in 2018, the quarterly pace has slowed to 0.22% for the first three quarters of 2019 – barely half of the UK’s potential rate (c0.4%).

The slowdown highlights the pains of political uncertainties linked to Brexit and the upcoming general election on 12 December.

Despite the rebound in real GDP, at 0.5%, the quarterly pace of nominal GDP growth was the slowest of the year so far.

He also sent these charts over:

UK GDP
UK government sending has risen, as business investment slowed

Today’s GDP report shows that private consumption, government spending and net trade all made a positive contribution to growth.

But ‘gross fixed capital formation’ (a broad measure of investment) contracted in Q3, and manufacturing has also shrunk over the last six months.

Updated

John McDonnell

John McDonnell, Labour’s Shadow Chancellor, isn’t impressed that the UK economy has barely grown over the last six months:

“Over the last year, growth slowed to its lowest rate in almost a decade.

“The fact that the Government will be celebrating 0.1% growth in the last six months is a sign of how low their hopes and expectations for our economy are.

“Labour will build a high-wage, high-skill economy by investing for growth in every region and nation of the UK.”

This chart shows how Britain’s annual growth rate has slumped to a nine-year low (the blue line) despite growth picking up in the last quarter (the red bars).

UK GDP to Q3 2019

Updated

Economist Simon French of City firm Pantheon is also concerned that growth fell in August and September, after a punchy July (+0.3%).

CNBC’s Joumanna Bercetche is concerned that factory output is weak (with no growth in the last quarter).

Updated

Business groups: Economy is still weak

Avoiding recession is obviously welcome news.

But the broader picture is that the UK economy is struggling along. With growth at a nine-year low, few experts are celebrating.

Tej Parikh, Chief Economist at the Institute of Directors, fears growth could slow in the current quarter - continuing the recent ‘yo-yo’ formation.

The UK economy has been in stop-start mode all year, with growth punctuated by the various Brexit deadlines. Indeed, the pick-up in the third quarter numbers may slightly exaggerate the strength in the economy, with some activity likely to have been brought forward before October 31st. The final quarter of 2019 could be weaker as stockpiles continue to be run down.

“While high employment has provided some support for the economy, underlying weaknesses in investment and productivity still need addressing. With uncertainty likely to persist and a continued slowdown in global markets, the onus is on the new government to stimulate economic activity and move the UK beyond its current yo-yo pattern of growth.”

John Hawksworth, chief economist at PwC, says the confusion over Britain’s exit from the EU is damaging growth.

Household spending remains the main motor of growth, with a 0.4% rise in the third quarter bolstered by stronger earnings growth.

By contrast, business investment was flat, reflecting the continued drag from Brexit-related uncertainty, which looks set to continue into the fourth quarter.”

Suren Thiru, head of economics at the British Chambers of Commerce, is concerned that the economy shrank a little in August and September.

The stronger headline figure masks an alarming loss of momentum through the quarter from a relatively strong July outturn and therefore does little to suggest any meaningful improvement in UK’s underlying growth trajectory.....

Despite the pick-up in growth, a slowing global economy has weakened firms’ cashflow, disrupted supply chains and stifled investment and is likely to squeeze economic activity in the fourth quarter and beyond, unless action is taken.

Alarmingly, most sectors of UK manufacturing have contracted over the last six months.

As the chart shows, car production slumped in the second quarter because auto plants brought their annual shutdowns forward to April, in case of a hard Brexit. That meant the production bounced back in the summer.

UK manufacturing production
UK manufacturing production Photograph: ONS

But if you strip car making out, UK manufacturing is clearly struggling:

The ONS says:

Manufacturing failed to grow in Quarter 3 2019, with falls in many industries almost solely offset by an increase in the manufacturing output of transport equipment.

This recovery in car production follows a decline in Quarter 2, because of partial closures of various car manufacturing plants.

The Office for National Statistics has tweeted the key points from today’s GDP report, including the fact that annual growth has hit a near-decade low:

On an annual growth basis, the UK economy is dragging its feet behind the US and France - but ahead of Italy:

GDP: The key charts

UK GDP to Q3 2019
UK growth to Q3 2019

Services growth, but manufacturing stagnates

Britain’s service sector provided the bulk of the growth in the last quarter, growing by 0.4% in July-September.

The construction sector grew by 0.6%, as building activity picked up.

But production and manufacturing stagnated again, with no growth in the quarter.

The ONS says:

Production was flat in the three months to September 2019; this sector has not seen positive rolling three-month growth since April 2019. Manufacturing, the largest sub-sector of production, was also flat in the three months to September 2019.

Weakest annual growth since 2010

Although the UK has avoided recession, the economy is still looking weak.

On an annual basis, UK GDP only rose by 1.0% in July-September compared with Q3 2018.

That’s the lowest annual growth rate since the first quarter of 2010 (as Britain clawed its way out of the Great Recession).

The economy did shrink in September, by 0.1%.

But strong growth in July means the economy expanded in the third quarter of the year.

UK returns to growth

NEWSFLASH: Britain has avoided recession.

The UK economy expanded by 0.3% in the third quarter of the year, the Office for National Statistics says.

That’s a welcome return to growth, following the 0.2% contraction in the second quarter.

More to follow…

Not long to wait.....

Updated

UK chancellor Sajid Javid will be quizzed about the state of the economy by the BBC’s Faisal Islam:

Updated

A Greggs vegan sausage roll

Bakery chain Greggs isn’t weighed down by recession worries.

The high street takeaway group has hiked its profit forecasts for the year, after posting a 12.4% jump in sales for the last six weeks.

Shares have surged 13% this morning, as new offering such as the vegan sausage roll keep luring customers in.

The UK was actually the worst-performing EU economy in the second quarter of 2019.

A 0.2% contraction put it at the bottom of the growth league, behind Germany and Sweden (which shrank by 0.1%).

EU GDP for Q2 2019
EU GDP for Q2 2019 Photograph: Eurostat

We’ll find out how Germany’s economy fared in the third quarter on Thursday - economists fear it could fall into recession....

In the City, the FTSE 100 index of top blue-chip shares has dropped by 0.5% in early trading.

It’s down 37 points at 7322, a one-week low.

Traders say there’s some nervousness ahead of today’s GDP report, not helped by Moody’s threat on Friday night to downgrade the UK.

Financial markets are unsettled by the latest protests in Hong Kong. Police have shot a protester after anti-government demonstrators took to the streets during rush hour.

Bloomberg also reckons the UK’s economy has lost momentum due to the ongoing Brexit crisis, saying:

The U.K. almost certainly avoided a recession ahead of the now-postponed October 31 deadline to leave the European Union. The economy expanded 0.4% between July and September, thereby avoiding a second straight quarter of contraction, according to the median forecast in a Bloomberg survey.

Brexit stockpiling has led to volatility in output this year but the underlying picture is one of an economy that has lost momentum amid the turmoil convulsing British politics.

UK GDP: Experts predict growth

Several economists believe that Britain’s service sector drove the economy back into growth.

Here’s Suren Thiru, head of economics at the British Chambers of Commerce:

Michael Hewson of CMC Markets also expects a bounceback:

The rebound is largely expected to have been driven by the services sector, which makes up almost 80% of the UK economy and tends to do all the heavy lifting in most cases.

The services sector is expected to contribute 0.4% of growth in Q3, with private consumption also contributing to a healthy rebound.

But Howard Archer of IHS Markit fears the underlying economy remains weak.

He predicts:

Even if GDP fell 0.1% month-on-month in September, third-quarter GDP quarterly growth will have been 0.4% quarter-on-quarter. Reasonable consumer spending growth, healthy tourism and positive contributions from government spending and investment were probably behind the economy’s growth in the third quarter.

It also looks likely there was some, albeit limited stockbuilding in September ahead of the scheduled 31 October Brexit due date.

However, another drop in business investment amid heightened uncertainty is likely to have weighed on the economy.

The Daily Express has taken something of a flyer on this morning’s GDP figures.

Their front page says there is a “Boris Boost as Economy Bounces Back”, even though we don’t actually have the growth data yet.

It boldly declares:

BORIS JOHNSON’S election hopes have been majorly boosted as the latest financial data will show the UK economy growing once again after a previous quarter of contraction.

They’re probably safe, as economists expected 0.4% growth to be announced at 9.30am.

But as the Financial Times’s Chris Giles points out, that wouldn’t be a sizzling performance at all.

Updated

Introduction: Has UK avoided recession?

The Canary Wharf financial district of London, Britain.
The Canary Wharf financial district of London, Britain. Photograph: Simon Dawson/Reuters

Good morning. We’re about to learn whether the UK has plunged into its first recession since the financial crisis.

GDP figures for the third quarter of 2019, due at 9.30am GMT, will show how the economy fared in September, and over the last three months.

It’s an important healthcheck, as Brexit uncertainty grips the country, the global economy slows and trade war tensions remain high.

These are the most eagerly awaited growth figures in some time, because the UK economy actually shrank by 0.2% in April-June.

If it also contracted in July-September then we’re in recession -- a body blow to the government as the general election campaign heats up.

UK GDP growth up to the second quarter of 2019

Economists fear that GDP dipped by 0.1% in September. But even if that happens, they’re hopeful that recession can be avoided -- because previous data has shown strong growth of 0.4% in July.

The City consensus is that GDP rose by 0.4% during the quarter as a whole.

But on an annual basis, growth is expected to have dropped to just 1.1%, from 1.3% three months ago. That would be a weak result, showing that the freeze in business investment since the EU referendum has hurt the economy.

A surge in Brexit stockpiling at the start of the year has made it harder to interpret recent economic data, as some firms ran down their inventories after the first Brexit deadline of 29th March was pushed back.

Today’s growth figures come shortly after Moody’s warned that it could slash the UK’s credit rating.

In a downbeat assessment of Britain’s economic prospects, Moody’s criticised the “increasing inertia and, at times, paralysis” seen since the Brexit vote. The UK’s institutional frameworks have become less capable or predictable, it fears.

Moody’s warned:

  1. UK institutions have weakened as they have struggled to cope with the magnitude of policy challenges that they currently face, including those that relate to fiscal policy.

  2. The UK’s economic and fiscal strength are likely to be weaker going forward and more susceptible to shocks than previously assumed.

It has now lowered its outlook on Britain’s credit rating, currently Aa2, from “stable” to “negative”. That implies the rating could soon be cut.

The agenda

  • 9.30am GMT: UK GDP for September, and the third quarter of 2019
  • 9.30am GMT: UK industrial production and services index in September
  • 9.30am GMT: UK trade balance for September

Updated

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