Economic News
CBI Economic summary
- Economic growth since the referendum has been strong, driven by resilience in household spending. Our surveys point to solid growth (of around 0.5%) in Q1 2017
- Costs are rising strongly following sterling’s depreciation last year, and CPI inflation has pushed above the Bank’s 2% target
- There are already some signs of consumer fundamentals looking a little softer, and real incomes seem set to fall over the second half of 2017.
Economic growth resilient UK economic activity has continued to hold up post-referendum, largely driven by continued resilience in household spending. Our March surveys indicate growth has remained solid in Q1 2017 (though a touch lower than Q4 2016), with our growth indicator (which compiles monthly data from our ITS, DTS and SSS) pointing to a rise in GDP of around 0.5%.
Low sterling supports competitiveness… The manufacturing sector appears to be doing particularly well, with our Industrial Trends Survey showing the fastest rise in output since July 2014. Encouragingly, export order books have improved markedly and are now at one of their strongest levels since 1995. This could be an early sign of the lower pound feeding through, though caution should be exercised when looking at only one data point. Nevertheless, our members are generally optimistic about competitiveness gains feeding through to export volumes ahead.
…but drives up costs… However, the lower value of the pound is a double-edged sword: it is also driving up import costs strongly across the economy, which will feed through to consumer prices further ahead. Input price inflation remained in double digits in February (19.1% y/y), and output price inflation also picked up (3.7%) to the highest in five years, indicating that these higher costs are being passed on. CPI inflation has picked up, to above the Bank of England’s 2% target for the first time in just over two years, largely driven by fuel prices. Inflation likely still has further to rise, as the impact of the lower pound on costs feeds through more prominently. Additionally, a number of energy providers have announced price rises to be implemented over the coming months which is likely to put some further upward pressure on inflation.
…and will erode household spending power Rising inflationary pressure will drag on household incomes, weighing on consumer spending. Recent data has already shown some signs of the income squeeze creeping in: real disposable incomes actually fell over H2 2016, suggesting that the resilience in consumer spending over this period was largely driven by households running down their savings: the savings ratio hit a new record low at the end of 2016 (3.3%). The picture may have continued into 2017, with nominal wage growth softening and inflation picking up further.
Markets stable on Article 50 trigger Article 50 was triggered on 29th March. There was little reaction from financial markets, as the date had been announced in advance and the general themes of the negotiations were outlined in the PM’s Lancaster House speech in January. Consequently markets had enough time to price it all in. However, sterling has been particularly sensitive to political rhetoric and economic dataflow recently and so any future remarks indicating how negotiations are going, or whether we are heading for a “soft” or “hard” Brexit, may lead to market volatility.
Barclays: UK Macroeconomic Snapshot Ahead of Brexit Talks
Activity in the UK felt the sting of Feb’17’s cold winds as all indicators were weaker than expected. The feb’17 estimate of index of production fell by 0.7% (m⁄m), driven by weakness in electricity & gas, mining & quarrying and manufacturing. Construction output declined by 1.7% (m⁄m), with broad based weakness. The dwellings component suggested residential construction investment growth of between 0.5% and 1.0% (q⁄q) in q1’17, after 2.2% (q⁄q) in q4’16. Meanwhile, turnover grew by 2.7% (m⁄m) in Feb’17 after 0.9% (m⁄m) in Jan’17. This was driven by services and capital goods while mining & quarrying and non-capital goods manufactures both detracted. Furthermore, turnover was driven by domestic as opposed to foreign purchases and matched with the international trade data showing that the total trade balance declined to -£3.7bn in Feb’17 from -£3.0bn in Jan’17, reflecting both a decline in exports as well as an increase in imports. The Mar’17 manufacturing pmi stood marginally weaker than in Feb’17, against expectations of improvement, the services pmi surprised to the upside, pointing to 0.4% (q⁄q) for q1’17 GDP growth. Given consumers will likely scale back their spending from rising inflation, activity is expected to slow even further in q2’17 and q3’17 and recover only thereafter.
The REC report on jobs showed Mar’17 data moving sideways. Permanent staff placements stood at 55.0, down from 56.1 in feb’17, but remained in line with the six-month average. Salaries fell marginally and stood at 59.0, down 0.5pts from Feb’17. This is consistent with the expectations that labour market quantities could remain resilient for few months ahead, with unemployment only beginning to increase in h2’17. Equally, wage growth is unlikely to accelerate anytime soon. This means that, with CPI continuing its ascent, soon there could be negative real wage growth. The nominal core wage is expected to grow at 2.0% (3m⁄y), which if realised, results in real core wage growth of only 0.1% (3m⁄y), down from 0.8% (3m⁄y) in Jan’17, lowest level since Sep’14.
Retail sales
UK retail sales posted their biggest quarterly fall in seven years in March, as the prices of everyday goods continued to climb. By volume, sales in the first quarter of this year were down 1.4% on the preceding quarter, and down 1.8% compared with February 2017, according to the Office for National Statistics. They fell across all types of shop except textiles, clothing and footwear. But the total amount spent was still higher than a year ago. Kate Davies, senior statistician at the ONS, said: “This is the first time we’ve seen a quarterly decline since 2013, and it seems to be a consequence of price increases across a whole range of sectors.” The ONS said average store prices had increased by 3.3% on the year, the highest growth since March 2012. The largest contribution came from petrol stations, where prices were up by some 16.4% on the year.
Other News
SAVE THE DATE: FOB 75th Anniversary Dinner 27th September 2017 at Fishmongers Hall in the City of London.
Tickets for the Federation of Bakers’ 75th Anniversary Dinner on Wednesday, 27th September at Fishmongers’ Hall in London are selling fast. Just a quick reminder that the early bird 10% discount ends soon. To get the early bird rate of £198 per ticket or £1,980 for a table of 11 (one goes free) please complete your booking no later than 30th April. For further information on this event and to book tickets please visit the bookings page on our website: FOB 75th Anniversary Dinner. f you have any queries please contact amy.yeates@fob.uk.com or caroline.ford@fob.uk.com
WRAP: http://mailchi.mp/wrap/6ilhxcvnuo?e=b066272825
CBI Event: Medium Sized Business (MSB) Summit
CBI are offering complimentary places for FOB members at the CBI MSB Summit, dedicated to medium-sized businesses in Central London on 22 June. This year’s programme is shaping up to be better than ever with acclaimed journalist and ex BBC Breakfast host Declan Curry chairing the Summit . With a mixture of inspiring keynote and panel sessions, as well as hands-on breakout sessions, you will hear practical advice from experts and peers on a range of topics including:
- The future of UK trade and making a success post Brexit
- Seizing opportunities from a modern industrial strategy
- Innovating for business growth.
Over the coming week’s we will be finalising the agenda for 2017 that will explore the intelligence and capabilities needed for businesses to succeed, from innovation and productivity through to expanding into new markets. See highlights from last year’s event.
As a trade association member, you are entitled to one complimentary place and your members are also entitled to one complimentary place per company. Each additional place is then £149.00. Please enter the promotional code TACOMP17 and choose Medium Sized Business Rate – please make your booking here http://bit.ly/2opEpSO
Sugar and Sodium Reformulation
According to Consumer Goods Forum (CGF) Health and Wellness Progress Report produced in conjunction with Deloitte more than 180,000 consumer goods worldwide were reformulated in 2016. Wholegrains and vitamins were the most common nutrients to be added.
Food and Drink Federation Awards 2017
Entries for the 2017 Food and Drink Federation Awards are closing soon! If you haven’t already, don’t miss your opportunity to highlight your company’s achievements at our prestigious annual award’s ceremony. The UK food and drink industry is bursting with bright ideas and talented individuals, so make sure your company gets the national recognition it deserves and enter now.
Entries are now open – Entries are free and open until 28th April 2017.
Who can enter?
- Food and drink manufacturers, big or small
- Retailers, producers, growers, hospitality
- Sectors working with the food and drink supply chain including researchers, distributors, health, local authorities, education providers.
2017 FDF Award Categories Available to Enter
Does your company get noticed as the best in its field?
Company categories
- Campaign of the Year
- Community Partner
- Education Initiative
- Environmental Leadership
- Exporter of the Year
- Good Employer
- Health
- Innovation
Have you got an exceptional colleague deserving the limelight?
Individual category
- Apprentice of the Year
- Community Champion
- Food and Drink Scientist of the Year
- Food and Drink Engineer of the Year
- Rising Star
Winners will be announced at a ceremony on 21st September 2017 at The Brewery, London.