Summary: Trade weighs on UK growth
Time for a quick recap.
New data has confirmed that the UK’s recovery slowed in the last quarter. GDP rose by 0.5% in the July-September period; down on the 0.7% growth recorded in April-June.
Britain’s trade gap was to blame. Net trade took a bite out of growth, thanks to a surge in imports in the last quarter.
The economy remains as unbalanced as ever. Service sector firms provided the bulk of the growth, while the manufacturing sector shrank last quarter.
Here’s the full story:
Britain is still outperforming most other countries. Growth of 0.5% matches the US economy, and beats the eurozone.
The UK also is outpacing poor old Greece. Its economy shrank by 0.9% in the last quarter; a deeper contraction than feared.
Greek economy contracts 0.9% in third quarter. Important to remember it was growing at fastest pace in euro area a year ago
— Bruno Maçães (@MacaesBruno) November 27, 2015
Rating agency Fitch has fired a warning shot at the Treasury. It fears that George Osborne has set himself little flexibility to react if the economy suffers a shock.
And Britain is refusing to get too excited by Black Friday. After last year’s chaotic scenes, there’s been a welcome outbreak of civility in the aisles.
Horrific scenes on the High Street as #BlackFriday consumer chaos reaches Perth pic.twitter.com/pUbFWZD1Pu
— Murdo Fraser (@murdo_fraser) November 27, 2015
That’s being tracked here:
In other news...Hervé Falciani, who blew the whistle on the funds sitting in Swiss bank accounts, has just been convicted of economic espionage charges, according to reports.
The former IT worker been sentenced to five years in prison, Bloomberg says.
*FALCIANI FOUND GUILTY BY SWISS COURT IN HSBC DATA THEFT CASE / 5 YEARS
— Guy Johnson (@GuyJohnsonTV) November 27, 2015
However, Falciani was tried in his absence, refusing to leave France and arguing that he couldn’t get a fair trial in a Swiss court.
The unencrypted data he took from HSBC has been used by various governments to reclaim unpaid tax.
Fitch: George Osborne risks boxing himself in
Rating agency Fitch has joined the chorus of experts warning that UK chancellor George Osborne is limited room for manoeuvre if the economy under-performs.
In its official response to Wednesday’s Autumn Statement, Fitch cautions that any economic shock could force the Treasury to rethink its plans.
And that’s because Osborne used the surprise improvement in the public finances to pay for his u-turn on tax credits, and to protect spending on the police. So if the economy underperforms, he must either impose more austerity or miss his target of a surplus by 2019-20.
As Fitch puts it:
Debt reduction is increasingly being driven by underlying growth and revenue trends, which could reverse (for example, if growth slows or revenue forecasts are revised back down).
Using better-than-expected revenue forecasts to scale back previously announced expenditure cuts suggests that this may pose downside risks to fiscal targets.
Here’s the statement:
Fitch: UK Consolidation on Track but Fiscal Constraints Show
It largely echoes yesterday’s analysis from the Institute for Fiscal Studies;
Today’s GDP growth report also highlights how UK manufacturing has been struggling over the last year, contributing to the trade gap:
That’s partly due to the slowdown in emerging markets. It’s also due to pound’s recent rally against the euro, to an eight-year high, which makes UK exports less competitive in Europe.
The service sector, though, has been growing steadily for almost three years:
The end of the cost-of-living squeeze is also driving UK growth, argues Sam Hill, senior UK economist at RBC Capital Markets.
He points to the recent drop in inflation (to minus 0.1%), which means real wages are up around 3%.
The domestic private consumer is proving resilient and accounting for a good deal of the core underlying real terms growth in the UK economy.
A real-terms income boost as the result of falling prices on a number of items of essential household spending is likely to have been an important driver of this.
Britain’s trade deficit really is quite shocking -- credit rating agency Standard & Poor recently declared the UK has the worst external liquidity metric of any of the 129 countries it rates.
On the subject of the UK net trade drag on GDP - UK's external deficits with the world are ranked as the world's worst, 129th of 129 by S&P.
— Mike Bird (@Birdyword) November 27, 2015
That was in July, when S&P put the UK on ‘rating watch negative’, the first step towards losing its AAA rating. More here.
Back to the UK... and today’s GDP report shows that the economy is only slightly larger than before the financial crisis began, once you adjust for population changes.
GDP per person (the red line) is now just 0.9% above its pre-downturn peak in the first quarter of 2008, having surpassed it in Quarter 1 2015.
Total GDP (the blue line) is around 6.4% above the 2008 peak .
Updated
Greek downturn worse than first estimated
We also have disappointing growth figures from Greece.
Well, when I say growth... its economy actually contracted by 0.9% in the third quarter of 2015, according to stats body Elstat.
That’s rather worse than the 0.5% contraction that was initially estimated two weeks ago.
Greek #GDP contracts at faster pace than previously estimated: Recent figures show that the economy shrank 0.9% q/q (prev. -0.5%)
— Markit Economics (@MarkitEconomics) November 27, 2015
The third quarter, from 1 July to 30 September, was a dramatic time.
It included the imposition of capital controls, temporary bank closures, an austerity referendum, the nail-biting EU summit in which Athens agreed to a third bailout, and a snap election.
No wonder the economy suffered.
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Kallum Pickering, economist at German bank Berenberg, predicts that UK growth will accelerate to 0.6% in the current quarter.
He believes the domestic economy is strong enough to ride out problems overseas:
Today’s GDP and services data reflect an economy driven by domestic demand that is resilient to foreign risks. The idea that the UK economy would be affected in light of accumulating foreign risks through more channels than trade is just that, an idea.
Domestic momentum was maintained through the third quarter and going forward we expect it to remain resilient with GDP growth accelerating to 0.6% qoq in Q4 2015 and maintain this pace over the medium-term.
And this chart shows how the services sector has outperformed since 2001:
Britain’s manufacturing body, the EEF, fears that Britain’s trade gap will not be closed anytime soon:
EEF chief economist, Ms Lee Hopley, says:
“No surprises in the second estimate as the economy was ticking over, including a chunky contribution from business investment, which has had an unbroken run of expansion for a year. Pulling sharply in the opposite direction is the contribution from net trade, with modest export growth being swamped by a massive bounce in imports.
“This looks like the pattern of growth we can expect over the next few years, with spending by households and capital investment remaining the key economic players. This will rely on businesses maintaining a strong appetite for continuing to expand, even in the face of some challenging external conditions.”
These figures show that talk about rebalancing the UK economy is “completely misplaced”.
So says Jeremy Cook, chief economist at the international payments company, World First:
“The latest growth figures from the UK economy have told us a very familiar story; private consumption and government spending are making up for a very poor trade outlook.
UK consumers have been ably helped this year by low interest rates, heightened disposable income courtesy of stagnant inflation and rising wages, and a strong pound.
On the other side of the coin, the weakness in our trade partners coupled with a pound that is 7.6% higher since this time last year has seen our balance of payments worsen and trade become the heaviest drag on growth it has ever been.”
Updated
Trade is the only part of the UK economy that didn’t provide some growth in the last quarter.
While trade wiped off 1.5 percentage points, Gross capital formation (basically investment in new machinery etc) was the best performing area, contributing 1.2 percentage points to GDP.
Household final consumption expenditure contributed 0.5 percentage points to GDP, and government consumption expenditure contributed 0.3 percentage points.
UK Q3 #GDP confirmed at +0.5%: Drag on growth comes from trade, which contributed negative 1.5 percentage points (heaviest drag on record)
— Markit Economics (@MarkitEconomics) November 27, 2015
Britain’s trade balance deficit almost doubled in the last quarter.
It widened from £7.7bn in April-June to £14.2bn in July-September.,
That’s because imports jumped by 5.5% in the quarter, while exports increased by only 0.9%.
Charts: Trade gap drags UK growth back
These charts show how net trade (exports minus imports) had such a negative effect on growth in the last quarter:
Britain’s balance of payments deficit has been a persistent problem, even before the financial crisis, and it doesn’t appear to be getting much better:
Britain's net trade hits record low
Britain’s trade gap dragged the economy back in the last quarter, worse than any time in at least the last 18 years.
Today’s GDP figures show that net trade wiped 1.5 percentage points off UK GDP.
That’s the weakest contribution on record, going back to 1997, following a positive contribution from net trade in the second quarter.
UK Balance of Payments Deficit widens yet further https://t.co/liFkV90E0F
— Jonathan Davis (@J0nathanDavis) November 27, 2015
Services is the only part of the economy that’s bigger than its pre-crisis level:
UK GDP +6.4% compared with 6.4% above 2008 Q1 peak: Services +11.1% Construction +4.4% Industrial Production +9.3% pic.twitter.com/Woiwujw33Z
— Noble Francis (@NobleFrancis) November 27, 2015
Britain’s manufacturing sector shrank by 0.4% in the last quarter, showing the factory output weakened over the summer.
The service sector continues to drive the UK economy.
The Office for National Statistics says that services expanded by 0.7% during the last quarter.
But industrial output was weaker than expected -- growing by just 0.2%, not the 0.3% first estimated. And construction output is unrevised, at minus 2.2%
UK GDP growth confirmed at 0.5%
Here we go...
The UK economy grew by 0.5% in the third quarter of 2015.
That’s a slowdown from the 0.7% expansion recorded in April-June, and bang-in-line with the initial estimate.
Updated
All hands on deck! UK #GDP revision is due at 9:30 am #GBP
— Shaun Richards (@notayesmansecon) November 27, 2015
Unless something seriously odd has happened, today’s GDP figures should confirm that Britain’s economy has now expanded for 11 quarters in a row:
But it’s been a bumpy road. Growth slowed to just 0.3% in January-March, only to rebound to +0.7% in April-June.
Updated
It isn’t even December yet, and the Bank of England has wheeled out the Christmas decorations:
Christmas has arrived at Threadneedle Street .... @bankofengland ☺️ pic.twitter.com/19fGw9T6L4
— BoESouthEast (@BoESouthEast) November 26, 2015
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Across Fleet Street, reporters are returning to their desks after an extra-early start to watch Black Friday unfold.
This year, though, Britain’s consumers have taken a relaxed approach to the bargain bonanza. No repeats of last year’s pushing’n’shoving.
Pandemonium in M&S pic.twitter.com/yo0uLD9lmd
— Bryan Roberts (@BryanRoberts72) November 27, 2015
Mad stampede of Black Friday shoppers leaving Tesco this morning pic.twitter.com/KaehKKm7i4
— Graham Ruddick (@GrahamtRuddick) November 27, 2015
And as the FT’s Peter Spiegel (an American) points out, we’re not really embracing the full spirit of the season:
So let me get this straight: UK has imported Black Friday from the US, but not Thanksgiving? One doesn't seem to make sense w/out the other
— Peter Spiegel (@SpiegelPeter) November 27, 2015
Turkey sandwich-lovers may have been disappointed.....
Best quote of Black Friday so far from one disgruntled Tesco shopper: "I just wanted to buy a sandwich, but they won't let me until 7am"
— Graham Ruddick (@GrahamtRuddick) November 27, 2015
Updated
FXTM Research Analyst Lukman Otunuga reckons the pound could be hit by today’s UK GDP figures (due in an hour’s time).
The lingering impact of Mark Carney’s inability to provide a concise timeframe on a UK rate rise has punished the Sterling this week. This single currency continues to face headwinds from the Bank of England’s clear reluctance to raise UK interest rates and this has encouraged sellers to depreciate the pound further.
Even though economic data from the UK has picked up in November, the non-existent rise in inflation has contributed to UK interest rate expectations being pushed back further. If the second estimate of the UK’s Q3 GDP points towards slowing economic growth, there is going to be further potential for the Pound to face losses.
Markets fall after Chinese markets tumble
It’s more of a Red Friday than a Black Friday in the City, where shares are falling in early trading.
The FTSE 100 is down 30 points or 0.5% at 6362. Other European markets are also dropping, after a big selloff in China.
The Shanghai market has tumbled 5%, its biggest fall since the summer.
The selloff was sparked by news that China’s securities regulator is now investigating two top brokerages over the causes of August’s market mayhem. This could lead to new curbs on leveraged trading (where investors borrow money to buy shares)
We shouldn’t read *too* much into one month’s data, but it appears that UK house price growth stalled last month.
Nationwide reports that prices rose by a modest 0.1% month-on-month, meaning the average house cost 3.7% more than a year ago (leaving little change from two hundred grand)
Nationwide also warned that few properties are coming onto the market (which would keep prices high).
Robert Gardner, its chief economist, says
“Surveyors have continued to report a dearth of properties on the market in recent months, with the number of available homes reportedly at the lowest level since the late 1970s.
Therefore it is positive that policymakers are focusing on the need to increase home building, with the Chancellor announcing a range of measures aimed at boosting housing supply in his Autumn Statement.
The current rate of construction activity is well below the projected rate of household formation. Only 135,000 new homes were built in England in the twelve months to September 2015, well below the c220,000 new households that are projected to form each year over the next decade.
Updated
Aïe. French GDP at risk of slowing down quite sharply in Q4. https://t.co/8ppUkAnU19
— Frederik Ducrozet (@fwred) November 27, 2015
Ouch. French consumers kept their hands in their pockets last month, suggesting the country’s economy may been slowing down this autumn.
Consumer spending fell by 0.7% during the month, with car sales dropping particularly sharply.
French consumer spending (-0.7% MoM in Oct) dragged down by durable goods (-1.8%) including autos (-3.4%).
— Frederik Ducrozet (@fwred) November 27, 2015
It could mean that France struggles to match its 0.3% growth in the last quarter, let alone beating it.
French consumer spending down 0.7% in October; poses risk to Insee's Q4 GDP growth forecast of +0.4%
— MNI Eurozone (@MNIEurozone) November 27, 2015
Updated
Pound playing piggy-in-the-middle
Today’s growth figures could highlight how Britain find itself between a strengthening US economy, and a weaker European one.
That tussle is hitting sterling - which is close to a seven-month low against the US dollar (at $1.509), and a near eight-year highs against the euro (€1.42).
As Jasper Lawler of CMC Markets points out, policymakers would favour a weaker pound:
Either way you swing it, the UK is caught in the middle of the extreme policy divergence between the US and Europe.
With Europe the biggest export destination for British businesses, you can understand Governor Mark Carney erring towards trying to combat sterling’s strength versus the euro when he said rates are to remain low “for some time.”
The agenda: UK growth figures...
Good morning.
Is Britain’s economy really as rosy as Wednesday’s autumn statement implied?
We’ll find out in 90 minutes, when the Office for National Statistics releases its second estimate of growth in the last quarter.
This Second Estimate of UK GDP gets under the bonnet of the economy, showing how private consumption, government spending, business investment and trade all changed from the start of July to the end of September.
It’s likely to show that the UK is still relying on the service sector, and consumer spending, for growth (but after Wednesday’s surprisingly upbeat figures, I’ll avoid any reckless predictions...)
The first estimate, released last month, showed growth of 0.5% in the quarter. That may be confirmed today too - if so, Britain is growing roughly as fast as the US, and faster than the eurozone.
The fun (?!) starts at 9.30am GMT.
We’ll also have an eye on Portugal, where a left-wing, anti-austerity government was sworn in last night.
It could be the start of another chapter in the eurozone debt crisis, with prime minister António Costa keen to implement more growth-friendly policies.
And it’s Black Friday, for those who worship at the altar of commerce:
We’re tracking the bargains, bracing weather and bust-ups (if any), here.....
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