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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK business investment slows, but retail sales bounce back - business live

Canary Wharf and the Thames Barrier in London.
Canary Wharf and the Thames Barrier in London. Photograph: Charles Bowman/Getty Images/Robert Harding World Imagery

Time for a quick recap.

A new report on Britain’s economy has shown that firms reined in their investment over the summer. UK business investment growth more than halved in Q3 2017, to 0.2%, suggesting bosses were reluctant to invest for the future.

The second estimate of UK GDP in July-September also found that household spending propped up growth, which was confirmed at 0.4%.

A separate survey has shown that retail sales have picked up in November, as shoppers returned to the high street after an October slowdown.

Yesterday’s budget continues to be scrutinised, with the Institute of Fiscal Studies warning that the UK risks losing two decades of earnings growth.

That’s all for today, I think. Good night! GW

A quiet day in the European markets has ended, with the FTSE 100 closing almost flat. France and Italy managed a small rally though.

Financial firms and organisations with a large gender pay gap may have to explain it to MPs.

Nicky Morgan MP, chair of the Treasury Committee, says there is no room for complacency, following the publication of the Bank of England’s data today.

She says:

“The Bank’s measures to address its pay gap seem to be on the right track, but we cannot be complacent. Any gap is still too great.

“As part of our Women in Finance inquiry, we will keep a close eye on organisations as they report their gender pay gap before the April 2018 deadline.

“We may call for organisations to give evidence to the Committee to hear about best practice. Financial firms should be prepared to explain any gender pay gap that they may have.”

Discouraging news from the UK labour market:

There’s no Wall Street open today; The US stock market is closed for the Thanksgiving celebrations, so traders will soon be tucking into the turkey with their nearest and dearest.

That means tomorrow is Black Friday – America’s traditional pilgrimage to the nearest mall to worship consumerism.

European readers have probably noticed that Black Friday has become a bigger deal over here in recent years. Retailers have been offering deals for several days, with a flurry of new offers due at midnight.

Press Association reports that some UK stores will opening early:

Among them are some John Lewis stores that are slightly extending their opening hours, a “few” Argos outlets opening early and 187 Tesco Extra stores that are closing at 1am and reopening at 5am on Black Friday, while a further 62 will open at 6am after preparing for the event.

But not everyone is happy. Amazon workers in Italy are going on strike, in a row over bonuses....

Mihir Kapadia, CEO of Sun Global Investments, is struck by the contrast between Britain’s latest growth figures and this month’s eurozone PMIs:

Britain’s has achieved a 0.4% growth rate in the last quarter, a respectable enough figure. However, UK business investment only rose by 0.2% in the last quarter, down from 0.5% in April-June which suggests that the growth rate is set to slow.

Meanwhile over in Europe, the recovery of growth continues as France outpaced Germany, and the Eurozone posted its strongest growth in over six years. We expect the German economy to ride though the coalition crisis which is expected to lead to fresh elections.”

The day after the UK budget is traditionally a time for the Institute of Fiscal Studies to explain what’s really going on.

And today, the IFS has torpedoed the suggestion that Britain’s era of austerity is over. There are plenty more cuts coming our way.

IFS director Paul Johnston has also flagged up that Britain’s economy is expected to lag other nations over the next five years.

He also rebutted some criticism of the decision to abolish stamp duty for first-time buyers purchasing homes under £300,000:

Andy Sparrow’s Politics Live blog has more details.

Here are some charts from the Bank of England’s gender pay report.

They showing how female staff at the bank receive smaller bonuses on average, as well as less basic pay.

Bank of England gender pay gap
Bank of England gender pay gap

So, lots of work still to do. But as the Financial Times’s Sarah O’Connor points out, it’s worse elsewhere in the City....

Newsflash: The Bank of England has just released its gender pay gap.

It shows that male staff at the UK central bank were paid 18.6% more than female colleagues this year (that’s the mean gender pay gap for base pay).

That’s down from 22% in 2013.

Governor Mark Carney says he is confident that men and women at the Bank are paid equally for doing the same job.

However, the “greater proportion of men than women in senior roles creates a gender pay gap”.

Updated

Rating agency Moody’s has now weighed in, saying that Britain’s growth has ‘stabilised’ in the last quarter.

In a new report, Moody’s says the Brexit vote has had a “moderate negative impact” so far. They also predict that labour market growth will remain muted, and that inflation will peak in the next few months.

UK retail sales bounce back, but concerns remain

Shoppers walk among the Christmas lights in Liverpool.
Shoppers walk among the Christmas lights in Liverpool. Photograph: Christopher Furlong/Getty Images

Breaking: UK retail sales have bounced back this month after a shock slowdown in October.

That’s according to the CBI’s survey of the sector, which found that clothing shops and grocers have enjoyed a pick-up in demand during November.

Some 39% of shops questioned by the CBI reported that sales volumes were up on a year ago in November, while 13% said they were down, giving a balance of +26%.

That’s a strong recovery from October’s -36, which was the weakest balance since the last recession in March 2009.

But it’s not all good news - retailers are also laying off staff, and worried that trading will be tough next year.

Rain Newton-Smith, CBI chief economist, remains cautious, saying:

“It’s great to see retail sales rebound this month after a big dip, but let’s be clear: our high streets are not out of the woods.

Ahead of the crucial run up to Christmas, the weaker pound has pushed up prices and retailers are nervous about business conditions and are trimming their workforces.

Jacob Deppe, head of trading at online trading platform, Infinox, can’t find much cheer in today’s UK growth update.

Today’s second estimate of GDP confirms what we already know. Growth this year has slowed considerably as a result of the uncertainty caused by Brexit and is set to be 1.5% at best....

Anaemic growth looks here to stay for years to come at a time when the other major economies of the world are enjoying a boom.

“With business investment softening by 0.2% between July and September and productivity growth this decade forecast to be the worst for 205 years, there’s little joy to be found in the economy just over a month before Christmas.”

Jeremy Cook, Chief Economist at WorldFirst, reckons British businesses are suffering from Brexit uncertainty, and the government’s failure to plan for the future better.

Cook says:

“The UK economy owes everything to the overstretched consumer. GDP grew by 0.4% in Q3, with all of that growth coming from consumer spending. Business investment has slowed and trade subtracted 0.5% from overall growth.

“This does not surprise us at WorldFirst given our latest Global Trade Barometer showed that as many as 1.1m fewer small businesses are trading internationally compared to this time last year. These businesses represent the back bone of the British economy and are being held back by uncertainty over future trade relations, poor productivity and an incoherent industrial strategy from Westminster.”

Kallum Pickering of Berenberg bank says household spending is being supported by debt, helping to prop growth up.

Here’s his take on the GDP figures:

Despite the Brexit driven temporary real wage squeeze caused by rising import prices, households are still coping well. Private consumption growth accelerated to 0.6% quarter-on-quarter from 0.2%. Sterling has fallen by c12% on a trade-weighted basis since the Brexit vote in June 2016.

Households are smoothing their real consumption by borrowing a little more and saving a little less for a while until real wages begin to rise again – probably early next year.

Today’s growth figures confirm that Britain is lagging behind its major European rivals.

Germany, for example, grew twice as fast in the last three months - expanding by a healthy 0.8%.

Dennis de Jong, managing director at UFX.com, says British growth remains “below par”.

The economy keeps chugging along, but comfortably at the slowest rate in the G7, and Britain is in danger of being left behind.

“After a number of growth forecast downgrades in Chancellor Philip Hammond’s Budget speech, we may need to face up to the fact that the situation isn’t going to get better any time soon.

“Inflation is up, but productivity and wage growth are down, which means there is far less money in the average Brit’s pocket. After Hammond announced a further £90bn worth of borrowing, the squeeze is only going to continue – worrying times for the man on the street.”

Economics journalist Dharshini David is also concerned by the breakdown of the GDP report:

UK business investment slows

Disappointingly, UK business investment only rose by 0.2% in the last quarter, down from 0.5% in April-June.

That’s the weakest quarterly growth since the end of 2016. It suggests that firms are reluctant to spend on new machinery and equipment in the current uncertain economic climate.

This is a worrying sign, as business spending is a key driver of productivity growth.

The new GDP figures also show that net trade had a negative impact on UK growth.

But, household spending actually picked up, according to the Office for National Statistics.

It says:

The rate of growth in household final consumption expenditure strengthened to 0.6% between Quarter 2 and Quarter 3 2017, with car purchases recovering somewhat from a low Quarter 2.

Britain’s film industry also had a good quarter:

Updated

UK manufacturing stronger than expected, but construction even weaker

Britain’s industrial base was stronger than expected in the last three months, but builders had a bad quarter.

The Office for National Statistics has revised up its estimate for industrial production growth, from 1% to 1.1%, in July-September.

BUT, it has also revised construction output down to -0.9%, from -0.7%.

Service sector output is unchanged, at +0.4%.

UK growth confirmed at 0.4%

Newsflash: Britain’s growth rate in the last quarter has been confirmed at 0.4%, in line with the first estimate of GDP.

Now onto the details....

Updated

The strength of growth in the eurozone is a stark contrast with Britain’s weakening economy.

Julien Lafargue, global investment strategist at JP Morgan, says Europe’s economy looks strong - meaning he favours owning share in European companies rather than UK ones.

Lafargue explains:

The economic momentum remains very supportive in the Eurozone.

With the rate of backlog accumulation rising despite companies hiring at the fastest pace in years, we expect to see further investments to boost production capacity. This in turn should support growth in the region and extend the cycle. Within the EU, this trend is in stark contrast with the picture depicted yesterday by the UK’s Chancellor and the Office for Budget responsibility which lowered UK’s GDP growth forecasts for every year until 2021.

Given this strong economic backdrop in the Eurozone vs. a UK budget that offered little in the form of stimulus, we continue to prefer Continental European equities.

Eurozone companies 'booming' with strongest growth in over six years.

Boom! Eurozone companies are enjoying their strongest month since April 2011.

The latest survey from data firm Markit shows that Europe’s recovery strengthened, with companies reporting a surge in output and hiring.

This pushed Markit’s composite PMI - a health check on companies across Europe - to 57.5, the highest in six and a half years.

France had a particularly strong month, outpacing Germany for only the fourth time in over five years. German growth remained strong too, though, suggesting its economy can ride out the coalition crisis that could lead to fresh elections soon.

Chris Williamson, Chief Business Economist at IHS Markit says “business is booming” in Europe, led by manufacturing.

Growth kicked higher in November to put the region on course for its best quarter since the start of 2011. The PMI is so far running at a level signalling a 0.8% increase in GDP in the final quarter of 2017, which would round-off the best year for a decade.

Jobs are being created at the fastest rate since the dot-com boom, yet despite this increase in operating capacity firms are struggling to meet demand. Backlogs of uncompleted work are growing at the fastest rate for over a decade, often resulting in a sellers’ market as customers struggle to source goods and services. Prices are consequently rising at an increased rate.

Britain facing worst living standard's squeeze on record

Newsflash: The UK is on course for the longest fall in living standards since records began in the 1950s.

That’s according to the Resolution Foundation, whose analysts must have worked late into the night crunching yesterday’s Budget, and the verdict of the Office for Budget Responsibility.

Resolution have found that the fall in living standards which began in 2015 will continue until 2020 - even longer than after the financial crisis:

It also warned that Britain’s productivity is the worst since the Battle of Borodino.

  • On a ten-year rolling basis, productivity growth is set to fall to 0.1 per cent by the end of 2017, marking this as the worst decade for productivity growth since 1812 – when Napoleon was busy invading Russia.
  • As a result the economy is on course to be £42bn smaller in 2022, compared to the March 2017 forecast.

More here:

Updated

Philip Hammond is touring the nation’s TV and radio stations this morning, defending the budget.

On Radio 4, the chancellor was grilled about productivity;

Q: Our productivity is still desperate. We have not been able to get a grip on it. You have been in power for seven years. Why haven’t you done something about this?

Hammond says the country was facing a fiscal and economic crisis after the crash.

Q: That was 10 years ago.

Hammond says, as soon as the government could start investing again, it did so. He put more capital investment in yesterday. Over this parliament the government will be spending £25bn more on capital investment than under Labour.

Q: But people want to know you understand why productivity is so low. You don’t seem to understand.

Hammond says there is a debate about this among economists. But we know the reasons. British businesses have less capital investment per worker than their competitors. Infrastructure spending is low, and skill levels are low.

Q: So why aren’t you doing something about it?

We are, says Hammond.

He says too few people have maths qualifications. He is investing in maths teaching. But that is a generational change. It will take years for the benefits to come through.

He says it is tempting for politicians to use the money for short-term fixes. But he wants to focus on measures that will deliver improvements over decades. That is what countries like Germany do.

Andy Sparrow’s Politics Live blog has full details:

Centrica’s slide has helped to pull the London stock market into the red.

The FTSE 100 is down 36 points, or 0.5%, in early trading.

Other European market are also in the red; exporters are suffering because the US dollar fell last night, after America’s central bank sounded cautious about inflation prospects.

Centrica shares slump after profit warning

Over in the City, shares in energy supplier Centrica have plunged by 15%.

British Gas’s parent company has revealed it lost 823,000 customer in the four months between June and October.

It has also admitted that earnings will miss market expectations this year. It blamed lower than expected adjusted operating profit in North America and the UK.

Centrica also warned that:

We are also reflecting the expected impact of warmer than normal weather across October and November.

That sent traders scrambling to sell shares at the start of trading, sending Centrica down 26p to 136.7p. That’s a 14-year low, and the biggest daily tumble in 20 years.

Centrica’s share price
Centrica’s share price Photograph: Thomson Reuters

Yesterday’s productivity downgrades are a ‘Suez moment’ for the UK economy, says our economics editor Larry Elliott.

He writes:

It is now more than 10 years since the start of the financial crisis and the OBR’s gloomy outlook marks the moment when Britain has to stop kidding itself. Growth is not going to return to its pre-crash levels. The 21% gap between output per hour now and where it would have been had it remained on its pre-2007 path is never going to be closed.

Britain is substantially and permanently poorer.

The agenda: New UK growth report and retail sales

Britain’s Chancellor of the Exchequer Philip Hammond outside his official residence 11 Downing Street yesterday.
Britain’s Chancellor of the Exchequer Philip Hammond outside his official residence 11 Downing Street yesterday. Photograph: Frank Augstein/AP

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

We got a worrying glimpse into Britain’s economic future yesterday. Philip Hammond’s autumn budget came laced with growth downgrades, forcing another £90bn of borrowing over the next few years.

As feared, the experts at the Office for Budget Responsibility threw in the towel over the health of the UK economy, conceding that we won’t return to the pre-crisis productivity growth of around 2% per year.

UK productivity forecasts
UK productivity forecasts Photograph: OBR/Resolution Foundation

Productivity growth is now expected to only average 1.4% - including just 0.9% this year. A dire outlook.

Economist and politicians will continue to probe the budget today, kicking the tires of policies such as the (criticised) stamp duty reform for first time buyers, (limited) universal credit changes and the rise in the personal tax allowance (which will benefit high earners the most).

Britain’s economy will still be in the spotlight this morning; we’re getting the second estimate of UK growth in the third quarter of 2017. It’s likely to confirm that growth chugged along at just 0.4% in July to September.

These figures will give a better insight into the economy, showing how government spending, personal consumption and business investment changed during the quarter.

Analysts at Royal Bank of Canada say:

Today’s second estimate of UK Q3 GDP isn’t expected to result in a revision to the first estimate of 0.4% q/q expansion. Since that preliminary estimate, the incoming information has revealed industrial production to have been stronger than initially thought and construction to be even weaker.

The expenditure breakdown becomes available on this occasion. The contribution of consumer spending has been weakening in 2017 and, having seen some of the early indicators of retail activity for October coming in on the soft side, we would caution against reading too much into any potential improvement in Q3 as far as consumption is concerned.

In the City, energy firm Centrica, wine supplier Majestic Wine and retailer Mothercare are all reporting results.

Plus, fresh data will show how Europe’s private sector and Britain’s shops are faring this month.

The agenda

  • 9am: Flash estimate of eurozone private sector growth this month,
  • 9.30am: Second estimate of UK GDP in the third quarter of 2017
  • 11am: CBI survey of UK retail sales in November

Updated

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