Dear all,
Here is the Director’s News for week commencing 19th November.
Have a good week.
Gordon Polson
Director – FOB
Dear all,
Here is the Director’s News for week commencing 19th November.
Have a good week.
Gordon Polson
Director – FOB
CBI Monthly economic brief
As expected, Q3 GDP strengthened relative to Q2, reflecting the impact of the warm weather and world cup.
CBI economic narrative
UK Q3 GDP benefits from summer boost
Official data from the Office for National Statistics stated that the UK economy grew by 0.6% in Q3 2018, marking a pick-up in growth from Q2 (0.4%). The ONS mentioned that there was some evidence that the warm summer weather provided a lift to a broad range of sectors. However, it’s clear that the economy lost momentum within the quarter, with monthly data showing no growth in August and September alone. Furthermore, the expenditure breakdown presented a somewhat mixed picture for growth. Despite solid household spending and a strong pick-up in exports, business investment fell for the third quarter in a row.
Private sector growth momentum slows at start of Q4
The CBI’s Growth Indicator showed that private sector growth was steady in the three months to October. Growth was driven by expansions in business & professional services and distribution. However, consumer services volumes fell slightly on the quarter, for the first time since the quarter to June. Next quarter, growth is set to grow at a similar pace, driven by growth in services and distribution – although the latter is expected to slow. This alongside Markit PMIs suggests that growth has slowed at the start of Q4 relative to average momentum over Q3.
The slowdown in growth momentum is likely to reflect the diminishing impact of the summer boost from the warmer weather and the World Cup. The latest Distributive Trades Survey showed that retail sales growth softened in the year to October, with additional weakness in consumer services. Meanwhile, business surveys indicate that manufacturing activity may have peaked, possibly reflecting the slowdown in global trade and uncertainty relating to Brexit. The CBI’s latest Quarterly Industrial Trends Survey painted a relatively gloomy picture of the manufacturing sector with optimism regarding the business situation and export prospects deteriorating, with the latter falling at the fastest pace in six years. Additionally, concerns that access to skills and labour were likely to restrict output and investment rose to the highest in almost forty years. Meanwhile, manufacturers expect to keep cutting back on capital expenditure for both tangible and intangible investments.
Bank of England’s MPC keeps interest rates on hold at 0.75%
The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain rates at 0.75%. Their guidance on the future path of rate rises remains unchanged, i.e. a further gradual tightening in monetary policy will be necessary to return inflation to target in the next few years. The BoE’s forecasts for GDP remain broadly unchanged (predicated on a smooth transition to the average of a range of options for a future trading relationship with the EU), but they forecast higher inflation ahead relative to the previous inflation report, due to higher energy prices in the near-term and stronger domestic cost pressures further ahead.
The Bank also gave some guidance on the outlook for monetary policy in the event of a disruptive outcome to EU negotiations. In this scenario, the MPC stated that it is prepared to either increase or decrease interest rates depending on how Brexit affects the economy – specifically on the balance of how much demand is affected relative to supply. For example, the economy’s supply capacity could be hit more quickly and to a greater extent than demand – thus pushing up inflationary pressure, and necessitating rate rises rather than cuts. Likewise, a bigger near-term hit to demand may require more monetary stimulus.
The MPC also noted that business investment had disappointed recently. Anecdote from our members and data from our surveys continues to suggest that heightened Brexit uncertainty is holding back investment decisions. This chimes with a survey conducted by the CBI on Brexit and contingency planning where 8 out of 10 businesses stated that their investment decisions have been negatively impacted by Brexit, up from 4 in 10 last year. Net trade is expected to continue to support the UK economy although it was noted that global trade risks are skewed to the downside. Nevertheless, household spending is stronger-than-expected underpinned by a tight labour market and resilient household confidence.
Tone of IMF more downbeat in latest forecast
Elsewhere, the IMF’s World Economic Outlook (published 3rd October) continued to forecast healthy growth in the global economy to the end of next year. However, the tone of the report was notably more downbeat, with the IMF downgrading their forecasts for global growth, driven predominantly by sharp downgrades to the outlook for emerging markets. Additionally, risks to the outlook have become increasingly skewed to the downside, particularly due to rising trade tensions between the US and China. The IMF estimated that a scenario with an extreme escalation in trade tensions could reduce global GDP by 0.4% in the long-term, with the impact greatest for the US, China and other NAFTA partners.
FDF Brexit Update: The Prime Minister presented the draft UK-EU withdrawal agreement and outline future trade agreement to the Cabinet on Wednesday and to Parliament and the country yesterday.
As our summary of the documents highlights, those draft agreements reflect some of the key issues we’ve been pressing for over the last couple of years to ensure the best possible EU exit deal and future trading relationship.
However, the turbulence in the political world that erupted following their publication has done nothing to provide any comfort or certainty to businesses about the nature of our trading relationship with the EU, and beyond, after 29 March 2019.
The spectre of a ‘no-deal’ exit from the EU looms ever larger. Working with Ministers and officials from DEFRA and DExEU, FDF is already engaged at the heart of government planning for this possibility. We continue to work with government to develop practical answers to crucial questions. These underpin the ability of UK food and drink business to plan for a ‘no deal’ exit.
We will remain vigilant to developments from the ongoing negotiations with the EU on the outline future trade agreement and to the myriad political developments unfolding at pace.
Roundtable on Sustainable Palm Oil(RSPO): The 15th annual general asembly of the RSPO met last week and agreed new certification standards for sustainable palm oil. It aims to strenghen social development, economic prosperity and environmental protections across the plam oil value chain. It comes into effect immediately with existing RSPO grower members given a one year transition period to implement the new standard. Full details https://www.rspo.org/
The European Commission (EC) has adopted a Communication outlining initiatives to ensure that the implementation of existing policies on endocrine disruptors reaches its full potential. This includes the identification of endocrine disruptors; improving communication throughout supply chains by using Safety Data Sheets as established under REACH; and taking forward the scientific assessment of endocrine disruptors with further regulatory action. The Commission will also launch a comprehensive screening of the legislation applicable to endocrine disruptors through a Fitness Check which will include a public consultation.