Director’s Weekly News – 14th January 2019

Posted on January 14, 2019 by admin - Chief Executive's Blog

Dear all,

Registration is now open for the 36th  AIBI Congress which is being held from 30 May – 2 June 2019 in Manchester with the programme focusing on ‘The Bakery of the Future’. This is the most high profile and important bakery conference to take place in the UK for some years.

Hosted by Cyrille Filott, global strategist, consumer foods at leading global food and agribusiness bank Rabobank, the event will see presentations from leading industry figures, including:

  • Jonathan Warburton, overseer of Warburton’s transition from a local family business to one of the UK’s leading bakery brands
  • Sir John Timpson, chairman of Timpson’s, the 900-store shoe repair and key cutting chain who can share how his radical management thinking can benefit the bakery sector
  • Rob MacKie – president and CEO of the American Bakers Association (ABA)
  • Sebastian Marcu – founder of Bake in Space, which seeks to address the challenges relating to production of fresh food in space
  • Jimmy Griffin – head of a four generation Irish family business and coach of the Ireland team which won gold in the European Bakery Championships

Joseph Street, president of the AIBI and non executive director of Fine Lady Bakeries said: “This year’s event will be an exciting opportunity for the whole industry –large and small bakers right through to the supply chain, from millers to ingredient suppliers – to network and come together to address key issues facing the bakery sector. Manchester has a rich baking heritage and we look forward to welcoming delegates from across Europe to the conference at the end of May.”

The Congress venue is The Midland Hotel, Manchester.

Gold sponsors are Kerry, Mecatherm, Puratos, Zeelandia and Lesaffre. Silver sponsors are Bakels, Kempf and CSM and bronze sponsors are AB Mauri, Rabobank and Fritsch.

Registration is via the link: http://aibi-congress2019.co.uk/.

Have a good week.

Gordon Polson

Director – FOB

Economic News

CBI Monthly economic brief

Economic Summary

  • The UK economy grew by 0.6% in Q3 2018 according to the ONS’ second estimate of GDP, unrevised from the first estimate. Meanwhile, strong retail sales data in November may be masking softer underlying momentum.
  • Business surveys suggest a softening in growth momentum in the fourth quarter of 2018.
  • Bank of England MPC voted unanimously to keep interest rates on hold and stated that Brexit uncertainty could cause volatility in UK growth.

 CBI Economic Narrative

  • Underlying growth has largely evolved as we had expected during 2018, at a slow and underwhelming pace (averaging 0.4% per quarter since the EU referendum). We expect similar growth to persist ahead, with the economy expected to have grown by 1.3% in 2018, and a similar pace expected in 2019 of 1.4% – broadly unchanged from our previous forecast (1.4% and 1.3% respectively). We expect growth to pick up slightly in 2020 (to 1.6%), but to remain below pre-crisis norms (GDP growth averaged 2.9% between 1997 and 2007).
  • Key features of our forecast include:
    • Household spending remains subdued, with real incomes growth staying weak. Consumer spending growth picks up somewhat over 2020 as real earnings continue to recover, though both remain below their pre-crisis averages.
    • Brexit uncertainty – particularly uncertainty around the full end-state of the UK’s relationship with the EU – continues to weigh on business investment. We expect some firming in growth towards the end of our forecast period, as uncertainty lifts and the impact of greater automation spending kicks in (our forecast is predicated on the UK entering the transition period after 29th March).
    • Support to growth from net trade peters out over our forecast. While decent global growth continues to support exports, this is largely matched by a mild pick-up in import growth, supported by a firming in domestic demand.
    • We also now expect a little more support from government spending, following announcements around increased spending on the NHS.
  • Our forecast is conditioned on the Withdrawal Agreement being ratified – particularly the implementation of a transition period until at least the end of 2020 – thus ensuring a smooth transition to a new relationship with the EU.
  • The prospect of a “no deal” remains the most immediate risk to the UK economy, and would likely lead to both greater financial market volatility and weaker economic growth than in our baseline forecast (depending on how long the UK remained in a no deal relationship with the EU). GDP growth would likely be more volatile in the near-term too, particularly if firms turn to stockpiling in the event of a no deal.
  • The global economy continues to expand at a decent pace, although the pace of expansion has slowed since the start of 2018. This reflects a combination of factors, such as the maturing of the economic cycle in key markets (such as China), higher oil prices, tighter global financial conditions, and the impact of rising trade tensions on business confidence. Nevertheless, the slowdown in global growth is expected to be gradual and the global economy is still expected to expand at a relatively healthy 3.7% in 2018, 3.4% in 2019 and 3.5% in 2020.

UK GDP growth unrevised at 0.6% in Q3 2018

The UK economy grew by 0.6% in the third quarter of 2018, unrevised from the first estimate. Q3 GDP growth was supported by the warm weather, which provided a boost to a broad range of sectors. The expenditure breakdown presented a mixed picture: despite solid household spending, business investment fell for the third quarter in a row.

Strong retail sales data may be masking softer underlying momentum

Annual retail sales growth picked up to 3.7% in November (from 2.4% in October), the strongest since July 2018 (3.9%). However, the strength of sales in November may have been flattered by discounting around “Black Friday”, which is difficult for the ONS to account for when seasonally adjusting their figures. Data for the last few years suggest that consumption patterns are gradually moving towards higher spending in November at the expense of December volumes.

CBI surveys indicate that private sector tailed off towards the end of 2018

Looking forward, we expect UK growth to have returned to a more subdued rate in Q4, as the temporary factors that supported economic activity in Q3 fade away. The CBI’s growth indicator showed that private sector activity remained unchanged in the three months to December. The stagnation in overall volumes reflected falling services volumes, which was offset by strong growth in manufacturing and steady growth in distribution. Within distribution, wholesale and motor trades saw solid volumes growth while retail volumes fell at the fastest pace since November 2014. This chimed with the Markit/CIPS PMIs that also signalled slower growth momentum in Q4. The composite PMI indicated that growth increased slightly in December, due to a slight pick-up in services growth and a further improvement in manufacturing growth. Nevertheless, the readings in November and December remained the slowest rates of expansion since the EU referendum.

The CBI’s growth indicator suggests that activity is set to remain steady overall in the first quarter of 2019, with the volume of business in services and retail expected to continue declining at the same pace, alongside slower growth in manufacturing and distribution.

Bank of England’s MPC keep interest rates on hold

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously (9-0) in December to maintain base rates at 0.75%. The MPC’s guidance on the future path of rate rises remained unchanged: an ongoing tightening in monetary policy will be necessary to return inflation to target, assuming that the economy continues to evolve in line with the MPC’s forecast.

CPI inflation came in at 2.3% in November, down slightly from 2.4% in October. The Bank of England now expect CPI inflation to fall to 1.75% in January due to falling oil prices, before continued domestic inflationary pressures (most notably wage growth) return inflation to target in subsequent months.

The Bank’s forecasts remained conditioned on the average of a range of outcomes for the UK’s future trading relationship with the EU. The MPC reiterated in the meeting minutes that their action in response to a no-deal Brexit was not an automatic rate cut, as no deal has impacts on both the supply-side and demand-side of the economy, and thus their action will depend largely on the balance of these two effects. They expect GDP to have grown by 0.2% in Q4 2018 and to remain at this rate in Q1 2019. However, the Bank observed that the impact of Brexit uncertainty on household and business behaviour could lead to greater volatility in growth.

Bank of England Agents’ summary of business conditions – 2018 Q4

  • Consumer demand softened, especially for major household purchases.
  • Investment intentions continued to weaken, with Brexit uncertainty a restraining factor.
  • Export growth eased slightly, following weaker demand from some emerging markets.
  • Recruitment difficulties continued to intensify and constrained growth for some contacts; pay growth was slightly higher than a year ago.

Full details on the links below.

https://www.bankofengland.co.uk/agents-summary/2018/december-2018

https://www.bankofengland.co.uk/-/media/boe/files/agents-summary/2018/2018-q4.pdf

CBI Brexit Update. A New Year for breaking the Brexit impasse?

Politicians are returning from their constituencies ahead of Tuesday’s Meaningful Vote, with a significant number preparing to rebel against the Government. Meanwhile in the EU, UK negotiators try to find a way of reaching written commitments on the Irish backstop to break the political impasse in parliament.

As the Brexit turmoil in Westminster continues into the New Year, the CBI has urged government to use 2019 to refocus its efforts on making the UK economy fairer and more prosperous through continued engagement with MPs and media interventions, including an interview on Channel 4 News, a piece in the House magazine, and a joint piece with other business organisations. Investors around the world are starting to ask why they should invest in the UK, and 2019 must be the year they get a loud and compelling answer.

To begin a drive for greater competitiveness, the CBI has called for removing the heightened uncertainty around Brexit. This means taking no deal off the table by seeking compromises on all sides of the House of Commons. It also means breaking the impasse on the Withdrawal Agreement and delivering a jobs first transition period to allow businesses time to adapt to future regulatory and economic changes. Politicians must ensure a Westminster drama doesn’t end in a national economic crisis over the coming weeks.

With the vote looming, the CBI will continue to make the case to MPs that talk of a ‘managed no deal’ is pure fiction. Compromises must be found to break the political deadlock around the Withdrawal Agreement and move on to the all-important discussions on the future trading relationship.

A key part of the CBI’s work will be to lay out the regional impact of no deal backed up by business case studies directly from the factory and office floor. The CBI will also be meeting with senior cabinet ministers as well as backbench MPs and will continue to engage with our sister federations in the EU and umbrella group Business Europe to push EU negotiators to seek compromises to avert a no deal.

Supermarkets clocked up a record £29.3bn in sales in the run-up to Christmas – up £450m on the previous year.

Saturday 22 December was the busiest shopping day of the year, according to data from Kantar Worldpanel. More than half of all households visited a supermarket that day, with 1.7 million more customers walking through the doors compared to the Saturday before.

On average, UK households spent £383 on groceries in December. Spending in the 12 weeks to 30 December had been tempered by lower like-for-like inflation than recorded in Christmas 2017, at 1.3% versus 3.6%.

“This slower inflation rate helped shoppers manage their festive budgets, with 60% of customers looking to make savvier decisions to make their money go further over the holidays,” said Kantar Worldpanel retail and consumer insight head Fraser McKevitt.

Seasonal confectionery was one of the big winners, with sales up 7%, while sales of whole turkeys dropped 7% as some shoppers opted for smaller joints, such as crowns.

Sales of premium own-label lines rose 3.7% to account for £1.1bn of sales over the 12-week period, although the growth was half that recorded a year ago.

“Asda’s Extra Special range was the fastest-growing of any premium line of the major retailers, helping the supermarket achieve growth of 0.7% and come out top among the big four,” explained McKevitt. “Asda was also bolstered by a standout online performance as its e-commerce sales rocketed by 12%.”

Tesco’s overall sales grew 0.6% year on year, Morrisons’ grew 0.1% while Sainsbury’s fell 0.4% (see table below).

The discounters have continued to grow rapidly, with Aldi up 10.4% – the fastest growth of the major supermarkets – and Lidl up 9.4%.

“The discounters have continued to make their mark over Christmas: two-thirds of all households shopped at either Aldi or Lidl over the 12-week period culminating in a highest-ever combined Christmas market share of 12.8%,” added McKevitt.

Other news

The Department of Health and Social Care (DHSC) has launched its Consultation on restricting promotions of products high in fat, sugar and salt by location and by price. The 12-week consultation closes on 6 April 2019.

The consultation proposes which products are in scope, along with the type of price promotions and store locations which would be restricted.

British Chambers of Commerce: According to the economic survey taken by the British Chambers of Commerce (BCC), the manufacturing sector is experiencing a record high level of recruitment difficulties. 81.0% of manufacturing firms interviewed for the BCC’s quarterly economic survey said they had difficulties recruiting the right staff – the joint highest level since the survey began in 1989.

The survey also reported that the percentage of manufacturers expecting to raise prices is at its highest in a year and is almost three times higher than its pre-EU referendum average. Cashflow is another major concern for the manufacturing sectors, with the balance of firms reporting improved cash flow remaining weak.

Dr Adam Marshall, Director General of the British Chambers of Commerce stated that the government’s absolute priority was to provide clarity on trade with the EU and avoid a chaotic brexit. Business communities won’t forgive politicians who allow this to happen, by default or otherwise. he also stated that the government must also listen to business concerns over its recent immigration blueprint. Companies must be able to access skills at all levels without heavy costs or bureaucracy.

Renewable Energy: According to an analysis by Carbon Brief, renewable energy made up a record 33.0% of UK energy production in 2018 even while total electricity consumption fell. It also stated that the amount of electricity generated per person fell to its lowest level since 1994 and that renewable energy has been one of the two largest contributors to cutting CO2 emissions from the UK power sector.

In 2018, the capacity of offshore wind farms nearly doubled, while solar and biomass generation both increased by over 10.0% respectively. Four offshore wind farms were opened in 2018, which can provide enough energy to power 1.5 million homes and have provided thousands of manufacturing jobs. Simon Evans, the author of the analysis at Carbon Brief stated that greater renewable energy usage as well as energy that is more efficient usage has caused the reduction in carbon emissions and that this combination will help the UK achieve its carbon targets. He also stated that using less as an end in itself isn’t the point. But it is the case that meeting carbon targets is made easier if energy is used efficiently.