This article titled “UK suffers ‘notable slowdown’ as GDP rises by just 0.3% in Q2 2017 – as it happened” was written by Graeme Wearden (until 1.55) and Nick Fletcher, for theguardian.com on Wednesday 26th July 2017 22.20 Asia/Kolkata
European markets move higher as Wall Street hits new peaks
A number of positive US corporate results – notably Boeing – and a jump in the oil price helped to push stock markets higher. European indices ended in the red, even as Wall Street hit new peaks ahead of the latest US Federal Reserve meeting. There is little expectation of any excitement from the Fed, however. Joshua Mahony, market analyst at IG, said:
This afternoon sees investors focus on the latest appearance from Yellen and co, at what promises to be a relatively uneventful meeting by historical standards. With the Fed Funds rate showing a 0% chance of a rate rise, and little chance of a balance sheet reduction being announced today, it is the linguistics which really matter. With no press conference from Yellen to contend with, markets will be keeping a close eye out for any mention within the accompanying statement of a potential September balance sheet reduction, alongside any reference to recent inflation disappointment.
The final scores in Europe showed:
- The FTSE 100 finished 17.5 points or 0.24% higher at 7452.32
- Germany’s Dax rose 0.33% to 12,305.11
- France’s Cac closed up 0.56% to 5190.17
- Italy’s FTSE MIB added 0.56% to 21,577.56
- Spain’s Ibex ended up 0.49% at 10,575.4
- But in Greece, the Athens market fell 1.52% to 830.21
On Wall Street, the Dow Jones Industrial Average is currently up 99 points or 0.46%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
UK and EU agree RBS deal over Williams & Glyn branches
Late news from the UK banking sector. The UK and European Union have agreed a deal to avert state aid issues surrounding Royal Bank of Scotland’s Williams & Glyn business. PA explains:
Royal Bank of Scotland is likely to avoid the compulsory sale of its Williams & Glyn branches by doling out £835m to help boost competition among UK banks
It follows a joint review by the European Commission (EC) and HM Treasury, which have put forward the “alternative remedies package” that will help fulfil RBS’s state aid obligations following its Government bailout at the height of the financial crisis.
The package includes plans for a £425m fund aimed at competitors across the UK’s banking and fintech sector, as well as a £350m pot meant to help challenger banks convince small and medium sized business – which were previously Williams & Glyn customers – to switch accounts and loans from RBS.
RBS will shell out an another £60m to cover additional costs, which will help cover the proposal’s implementation.
The proposal, which still requires approval by the EC’s College of Commissioners, will save RBS from hiving off the near-300 Williams & Glyn branches, having struggled to find a buyer ahead of its deadline which was set for the end of 2017.
A decision by the College of Commissioners that could cement the terms of the proposal is expected in the second half of the year.
Here’s Reuters on the jump in the oil price following the US crude stock figures:
Oil prices rose to near eight-week highs on Wednesday, with Brent crude futures at over a barrel, as a fall in U.S. inventories bolstered expectations that the long-oversupplied market was moving toward balance…
U.S. crude stocks fell last week as refineries hiked output and imports dropped, while gasoline stocks decreased and distillate inventories fell, the Energy Information Administration said on Wednesday.
Crude inventories fell 7.2 million barrels in the week ending July 21, more than the expected decrease of 2.6 million barrels. The decline was the fourth consecutive drop, giving support to the market.
This added to hopes a long-awaited rebalancing was underway in the oil market. Saudi Arabia said on Monday it would limit oil exports to 6.6 million barrels per day (bpd) in August, down nearly 1 million bpd from a year earlier.
“Today’s report has strengthened the bullish sentiment already prevailing in the market, although the longevity of the move remains in doubt,” said Abhishek Kumar, Senior Energy Analyst at Interfax Energy’s Global Gas Analytics in London. “Nevertheless, the country’s crude and gasoline stockpiles remain above their five-year averages, which will cap price gains.”
The drawdown was a combination of higher exports from the United States, marginal decline in oil output and a rise in the refinery utilization rate, he said…
But analysts said the current oil price rally could encourage more production, particularly from the United States.
“Relieved bulls should be careful what they wish for. Any price rebound will only embolden U.S. shale producers at a time when rumours have started to emerge that the U.S. shale boom is slowing,” PVM oil analyst Stephen Brennock said in a note.
Oil jumps after bigger than expected fall in US crude stocks
Oil prices, already on the rise on signs that recent output cuts could be having an effect, have gained more ground after a bigger than expected weekly fall in US crude stocks.
Crude inventories fell by 7.21m last week to 483.42m barrels, much higher than the forecast 2.6m decline, according to the Energy Information Administration. Gasoline stocks fell by 1.02m barrels compared to the expected 0.6m barrel drop.
So Brent crude, up around 0.18% at .29 a barrel ahead of the US figures, jumped 1.5% to .94.
Connor Campbell, financial analyst at Spreadex, said:
Just as this afternoon looked like it was going to settle into some traditional pre-Fed dreariness the Dow Jones surged to a fresh all-time high off the back of a decent set of earnings.
Boeing ended-up being the stock to spark the Dow’s lift-off, the jet maker surging more than 8% after beating EPS estimates and raising its full year guidance. This helped the US index rise by 110 or so points after the bell, taking it above 21700 for the first time in its history (for those keeping track, that’s roughly 3300 points gained since Trump won the election last November).
And that, of course, is not all for the US markets, with July’s Federal Reserve meeting still to come. Though the central bank has done a lot to reduce rate hike expectations to effectively zero for this month – the CME FedWatch tool has the chances of a move at just 3.1% – investors will be keen to see whether Yellen and co. tee up an autumn or winter increase.
US home sales came slightly below forecast last month.
June single family home sales rose 0.8% to 0.610m units, compared to expectations of a figure of 0.615m. The May figure was revised down from 0.610m to 0.605m.
The median sale price fell 3.4% to 0,800.
Wall Street hits new highs
A raft of positive company results, including Boeing and AT&T, has pushed Wall Street to new record levels.
The Dow Jones Industrial Average hit a new peak of 21,711 shortly after the market opened, while the Nasdaq Composite rose 0.22% and the S&P 500 0.12% to record levels.
Chancellor Philip Hammond has been speaking to Sky about the UK economy:
There is a degree of uncertainty aound the UK economy in particular because businesses and consumers are looking for clarity about what our future relationship with the European Union will be. That’s why we attach importance to as early as possible agreeing what the interim arrangements will look like as we leave the European Union in March 2019 and move to a long term different kind of arrangement with the EU. The earlier we can get agreement on transitional arragnements the greater clarity business and consumers will have. So that’s definitely the first port of call..in removing some of this uncertainty.
I think the right way to go forward is to preserve some headroom within our fiscal rules so that if the economy starts to slow we have the ability to respond and support it, but to be very clear that our intention is to get back to living within our means…. to balance the budget by 2025 and make steady progress to doing that.
Graham Toy, chief executive officer of the National Association of Commercial Finance Brokers, is relatively upbeat about the GDP figures, all things considered, but is worried about rising consumer credit. He says:
The economy isn’t firing on all cylinders but neither is it out for the count.
In fact, faced with such political uncertainty, the economy is proving to be remarkably resilient.
The one concern is that the service sector continues to prop up this growth, fuelled by consumers’ ready access to credit.
The upbeat performance of the services sector has helped to offset falls in industrial output and construction.
The Bank of England’s warning shot over spiralling consumer credit could well end up damaging this relatively rosy outlook in the coming months.
While the Bank’s response to rising consumer debt is understandable, the economy – as well as consumer and business confidence – would benefit from a controlled approach to bringing consumer spending under control.
Sterling has taken today’s UK growth report in its stride.
The pound is up 0.3% against the euro at €1.1208, and 0.2% higher against the US dollar at .305 – broadly unchanged since the GDP data hit the wires.
Shares are up too, with the FTSE 100 gaining 32 points to 7466.
That’s not too surprising, given the City had expected growth of 0.3% in Q2.
Fawad Razaqzada of Forex.com says.
The pound didn’t show any positive reaction in the immediate aftermath of the data release as the number was bang in line with the expectations. Yet equally, the sellers had little desire to show up.
UK growth is below capacity
Britain’s economy is currently running some way below its potential, according to this chart from the National Institute of Economic and Social Research.
NIESR Director Jagjit Chadha says growth may remain sluggish through 2017.
The economy will probably continue to perform at sub-par levels and this importantly this implies only a minor improvement in income per head this year, which is a better measure of welfare than GDP alone.
Indeed there are signs that for many households consumption will be crimped as the year progresses with a fall in real disposable income and credit availability drying up”.
We don’t yet know how Britain’s performance compares to its rivals.
The UK is the second major nation to report second-quarter growth figures after China, which grew by an annual rate of 6.9% [roughly a quarterly rate of 1.7%].
French GDP is being released on Friday morning, and expected to grow by around 0.5%.
Here’s economics editor Larry Elliott’s take on today’s GDP report:
Britain’s economy grew by just 0.3% in the second quarter of 2017 after what government statisticians called a “notable slowdown” in the first half of the year.
The expansion in the three months to June followed 0.2% growth in the first quarter and was in line with City expectations for the eagerly awaited first estimate of the economy’s recent performance.
Official data for gross domestic product showed that of the three big sectors of the economy, only services were bigger at the end of June than in March, posting growth of 0.5% over the quarter.
Industrial production, which includes manufacturing, fell by 0.4%, while construction was down by 0.9%.
Darren Morgan, head of national accounts at the Office for National Statistics, said: “The economy has experienced a notable slowdown in the first half of this year. While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.”…
This chart underlines how the service sector has driven UK growth for years.
And this one shows how retail and motion pictures provided the biggest spur to growth…..
Berenberg: Brexit is holding UK back
Although Britain’s economy is growing, it would be growing rather faster without the disruption and uncertainty created by Brexit.
So says Kallum Pickering, senior UK economist at Berenberg bank:
Since the Lehman recession, the UK has sat comfortably at the top of the G7 growth league. But whereas growth has accelerated significantly so far this year in continental Europe and many emerging markets, the UK is missing out.
While the downside risks from the Brexit vote have not yet played out in a major way, the uncertainty stemming from Brexit is leading to caution in all areas of spending and policy that have long-term implications.
The UK would probably be growing at 2.5% or above this year were it not for Brexit, with strong gains in real wages and more business investment. We forecast real GDP growth of 1.6% in 2018 and 1.7% in 2019.
Experienced City analyst George Magnus warns that Britain is vulnerable if the global economy falters:
Ian Kernohan, economist at Royal London Asset Management, predicts that the weak growth means the Bank of England will leave interest rates at record lows next month:
We expect the Bank to keep policy unchanged until we have greater clarity on what is happening to underlying inflationary pressures in the labour market.”
Charles Hepworth, investment director at Swiss investment group GAM, says the outlook for the UK is murkier than some people expect:
Growth would have been expected to be negatively impacted by the political shocks which came part way through the quarter with the unexpected General Election result and the associated currency weakness affecting the domestic inflation picture.
The Office for National Statistics noted that the UK experienced “a notable slowdown” in the first half of the year, reflective of the continuing uncertainty surrounding the Brexit process. This follows on from the IMF earlier this week cutting its 2017 growth forecast for the UK to 1.7% from 2%. The outlook isn’t as rosy as some suggest and affirms our cautious view on UK assets, particularly domestic equities and sterling.
CBI: Sluggish growth shows importance of Brexit deal
Rain Newton-Smith, the CBI’s Chief Economist, says Britain’s economic growth “remained sluggish” in the last three months.
Worryingly, she expects this to continue for a while….and is urging the government to negotiate a ‘transition’ deal to help companies after the UK leaves the EU.
We expect growth to remain lukewarm over the next couple of years, so providing businesses with certainty and stability has never been more important.
“A limited transition period as we leave the EU where the UK stays in the single market and a customs union until a final deal is in force, would help create a bridge to a new trading arrangement. It would give businesses the confidence they need to invest, expand and create jobs.”
This table shows how the UK service sector drove growth in the last quarter, while industrial production and construction shrank:
On a per-capita basis, UK GDP rose by only 0.1% in the last quarter.
In other words, if you adjust for population changes, Britain’s economy barely grew at all.
Hammond: No room for complacency…
Political reaction to the GDP figures is coming in now.
Philip Hammond, Chancellor of the Exchequer, points out that the economy is still growing….
“Our economy has grown continuously for four and a half years, delivering record levels of employment. We can be proud of that; but we are not complacent.
We need to focus on restoring productivity growth to deliver higher wages and living standards for people across the country. That is why we are committed to investing in infrastructure, technology and skills to deliver the best possible base for strong future growth.”
But John McDonnell MP, Labour’s Shadow Chancellor, is alarmed that UK growth since January is the weakest since 2012.
“Today’s GDP figures reveal weak growth under a weak government, and expose the last seven years of Tory economic failure.
“Growth for the first half of 2017 is below expectations, and it follows continued data showing working families are being squeezed with wages not keeping up with prices.
“The truth is that the Tories’ austerity cuts have undermined working people’s living standards and weakened the UK economy.
“Only a Labour Government has a strategic plan of investment to boost growth, underpinned by our Fiscal Credibility Rule; which will help build a high wage, high skill economy that works for the many not the few.”
Ranko Berich, Head of Market Analysis at Monex Europe, says the overall picture of the UK economy this year is “grim” compared to 2016.
And that means there’s little room for the Bank of England to consider raising interest rates.
“Despite frothy optimism in sector survey data, manufacturing failed to make a positive contribution to GDP growth, but if the latest surveys are to be believed this may change in the second half of the year.
“The main takeaways from today’s figures are that the UK economy continues to live and die by the consumer, and the business investment pickup hoped for by the Bank of England has not yet materialised.
The BoE has been making some hawkish noises lately, but data like these mean the MPC would need to be very confident indeed about investment picking up in the immediate future to hike rates.”
Film industry drives growth
Britain’s film industry has played a significant role in the modest growth in GDP in the last three months.
An ONS spokesman said boost to film production was the biggest factor, though he was unable to give details of specific films that had contributed to the industry’s output in recent months.
Underlying the continued attraction of the big screen, he said the success of cinema ticket sales for Wonder Woman and the latest in the Pirates of the Caribbean franchise also played a part.
Recent tax credit changes have also made the UK a more attractive prospect for production companies. As this chart shows, Britain’s motion picture and publishing sector has significantly outpaced the European Union average since 2014:
On the upside, this is the 18th quarter of growth in a row.
But on the downside, Britain has now recorded its weakest six months of growth since 2012.
Growth is “clearly becoming harder to come by” in the UK, says Nancy Curtin, chief investment officer at Close Brothers Asset Management.
The competitive pound has boosted exports, as has increasing global demand. However, weakening consumer spending power is a real concern. The lack of real-terms wage inflation also continues to drag, as does low productivity.
What’s more, companies still do not have clarity on the nature of Brexit, which is impeding long-term investment decisions.
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Manufacturing shrank as car production declines
There’s scant evidence that Britain’s economy has rebalanced during the last three months.
While the service sector grew by 0.5%, manufacturing output actually contracted by 0.5% during the quarter.
That’s mainly due to a fall in production of motor vehicles.
Britain’s economy is now 9% above its pre-downturn peak, says the ONS.
ONS: UK experiences a notable slowdown
Today’s report shows that Britain’s economy has experienced a “ a notable slowdown in the first half of this year”, says ONS Head of National Accounts Darren Morgan said:
That’s because GDP only grew by 0.2% in January-to-March, and then by 0.3% in April-to-June – both below the long-term growth trend.
“While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.”
Today’s figures also show that the UK economy has expanded by 1.7% over the last 12 months, down from 2% three months ago.
Britain’s service sector drove the economy in the last quarter, with output rising by 0.5%.
But, as feared, industrial output shrank by 0.4% and construction contracted by 0.9%.
UK GDP RELEASED
BREAKING: Britain’s economy grew by 0.3% in the second quarter of 2017.
That’s up from 0.2% in the first quarter, and in line with City forecasts.
More to follow…
The tension is building….
The pound is creeping higher as City traders get ready for the growth figures in 20 minutes time.
Sterling has gained 0.3% against the euro, to €1.12. It’s also a little higher against the US dollar, at .303.
You’d expect the pound to rally if GDP is stronger than expected, and slide if the data is disappointing.
Andy Bruce of Reuters confirms that most economists expect a modest increase in UK growth:
If they’re right, that will show that Britain has suffered “a clear loss of momentum” this year, say Marc Ostwald of ASM Investor Services.
Overall the UK economy looks it is moving to the bottom of the G7 growth league table, though it should be added that it is currently not headed for recession.
If you really want know what’s happening in an economy, GDP is a rather blunt tool.
It tries to measure the total value of all of the goods made, and services provided, in an economy, to show whether it grew or shrank.
But it doesn’t track unpaid work, show whether growth came at the cost of environmental damage, who benefitted from this economic activity, or whether it made economic inequality better or worse.
Nearly fifty years ago, US senator Robert Kennedy eloquently summed up the problems with GDP.
In a speech at the University of Kansas, Kennedy explained:
“Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over 0 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.
It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and its counts nuclear warheads and armored cars for the police to fight the riots in our cities.
It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.
Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
And it can tell us everything about America except why we are proud that we are Americans.”
GDP: What the experts predict
Many City economist have warned that today’s UK growth figures may show little improvement on the first quarter of this year.
Danske Bank’s Kristoffer Kjær Lomholt says:
We estimate the economy expanded by 0.3% quarter-on-quarter, which is not much stronger than the 0.2% q/q growth rate in Q1 (the weakest among the EU member states). The main reason is that private consumption has slowed, as the weaker pound is eroding consumer purchasing power.
Royal Bank of Canada have cut their growth forecast from 0.4% to 0.3%. Here’s why:
After considering the pattern of activity in construction and industrial production in April and May, and the headwinds for the consumer that have been constraining elements of service sector growth, we now consider that it would take an unlikely combination of positive news across all sectors in June to get to growth of 0.4% q/q overall.
Howard Archer, chief economic adviser to EY Item Club, also expects growth of around 0.3%:
“It looks odds-on that whatever growth the UK managed to eke out in the second quarter will have been solely due to the services sector.
“This does appear to have seen some pick-up in activity after a particularly weak first-quarter performance.
“Industrial production and, especially, construction output both fell month-on-month in April and May, and were clearly on course for contraction over the second quarter.
“Despite decent overall manufacturing surveys for June, we suspect industrial production could have contracted by around 0.4% quarter-on-quarter in the second quarter while construction output may have fallen by around 1.7% quarter-on-quarter.
The agenda: It’s UK GDP Day
We’re about to discover how well, or badly, Britain’s economy performed in the last three months.
New GDP data, due at 9.30am, will give the first official insight into UK growth in the second quarter of 2017. It will show whether the economy bounced back from its slowdown at the start of the year, or is still stuck in a soft patch.
And the figures may reinforce fears that the economy has lost momentum this year.
The City’s top number crunchers predict that the economy expanded by between 0.2% and 0.4% in April-to-June, with a consensus of +0.3% growth. Industrial production and construction are expected to have struggled.
That would be little better than in Q1, when GDP rose by just 0.2%. That made Britain the slowest-growing G7 economy, as consumer-facing industries shrank and household spending was hit by rising prices.
Many economists fear that Britain’s economic fundamentals are deteriorating, as Brexit uncertainty hits business investment and the weak pound pushing up inflation.
But more optimistically, Britain’s economy has already racked up 17 quarters of growth in a row. That should become 18 quarters today (unless something very nasty happened….)
We’ll bring you the GDP data at 9.30am, followed by instant reaction and analysis through the day, plus any other major economic and financial events.
- 9.30am BST: First estimate of UK growth in Q2 2017
- 3pm BST: US new home sales figures
- 7pm BST: US Federal Reserve’s decision on American interest rates and stimulus programme
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