Director’s Weekly News – 1st October 2018

Dear All,

Apologies for the delay in sending this to you this week.

Gordon Polson – Director

Federation of Bakers

 

Economic News

CBI Economic summary:

  • CBI surveys suggest that warmer weather has boosted growth over Q3, however these effects are likely to be temporary and are expected to unwind towards the end of the 2018
  • The underlying UK growth picture remains subdued, with conditions for consumer-facing firms remaining particularly challenging due to the ongoing squeeze on household incomes. In contrast, the strength in the global economy is expected to continue supporting manufacturing export growth
  • CPI inflation edged higher in August, contrasting with consensus expectations of a slight fall.
  • The UK economy grew by 0.4% in Q2 2018, according to the ONS’ second estimate of GDP. This was unrevised from the first estimate released last month.

 

 

CBI economic narrative

    • 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, even if growth has peaked, the slowdown in global growth is expected to be gradual and the global economy is still expected to expand at a relatively healthy 3.8% in 2018 and 3.6% in 2019.
    • In the UK, we continue to expect net trade to support economic growth, with exports lifted by the low pound and supportive global backdrop. However, uncertainty around the strength of external demand has increased, with weaker official data on trade contrasting with business surveys (our own and others’), which continue to show historically elevated export order books and growth in export deliveries.
    • Consumer spending will continue to be constrained by weak real wage growth (i.e. the fact that wages are growing only marginally faster than inflation – consumer spending makes up two-thirds of GDP), which is maintaining pressure on consumer-facing firms. It is likely that the recent improvement in retail volumes and sales by other consumer-facing firms (restaurants, bars and hotels) reflect a temporary boost from the good weather and the World Cup. This is expected to unwind towards the end of the year.
    • Brexit uncertainty continues to apply the brakes to some areas of investment spending, particularly bigger projects, but smaller projects continue to go ahead. Our surveys show that investment plans remain weaker than pre-referendum, but above the long-run average. Brexit uncertainty is at least partly offsetting more supportive investment fundamentals which include: healthy corporate profitability, low borrowing costs, limited spare capacity and strong global activity.
    • Notably, the manufacturing sector saw a sharp drop in investment intentions for product and process innovation and training and retraining in the July quarterly CBI survey. Respondents cited a mixture of Brexit uncertainty, cost pressures and investment cycles maturing.
    • However, this is does not seem to be the case in other sectors with Brexit also making it more difficult to recruit and retain workers according to some companies. Services and financial services are continuing to invest in training and retraining and are increasingly focussed on investing in automation and AI (notwithstanding subdued investment plans more generally).
  • Weather effects aside, the economy in 2018 has evolved broadly as we have expected. We expect GDP growth of 1.4% in 2018 and 1.3% in 2019, which represent fairly sluggish rates of growth for the UK.

 

 

CBI surveys suggest an improvement in growth momentum in Q3…

The CBI’s September growth indicator points a slight uptick in GDP growth over Q3. Stronger momentum has been driven by an improvement in consumer services, retail and manufacturing volumes/output growth. In particular, consumer-facing sectors such as retail have been supported by the warmer summer weather and the World Cup, with the CBI’s retail survey showing the fastest growth in sales since July 2017(on a 3m/3m basis).

 

…but underlying conditions remain subdued

Nevertheless, this uptick is likely to be temporary, and so is expected to unwind towards the end of the year. Indeed, we may be seeing early signs of hitherto strong manufacturing growth starting to unwind. The CBI’s Industrial Trends Survey showed that output growth eased in the three months to September, albeit remaining above the long-run average. Total and export order books also weakened in September, but nevertheless remained noticeably elevated in historical terms. The sector is expected to continue to be supported by firm global growth ahead. Please see the CBI’s economic forecast for more information.

 

Crucially, underlying consumer fundamentals are also more subdued than data on retail and consumer services suggests. Household incomes remain squeezed, with CPI inflation picking up to 2.7% in the year to August, from 2.5% in July, contrary to consensus expectations of a slight fall. August’s rise in inflation seemed to be driven by volatility in a number of prices, so we still expect inflation to fall back further ahead. Nevertheless, with nominal wage growth remaining weak in the face of sticky inflation, real wage growth is set to remain modest going forward.

 

Q2 recovery in growth supported by warm weather

Looking further back, the ONS’ latest estimate of Q2 GDP growth was unchanged at 0.4%. The bounce back in growth from a weak Q1 was driven by sectors that were heavily affected by the snow earlier in the year, such as retail and construction. For example, retail posted a strong bounce back in Q2 (2.1%) following a fall of 0.4% in Q1 – separate data indicates that this was driven by food and drink sales due to the warm weather and World Cup celebrations.

 

However, the expenditure breakdown of GDP growth was less sanguine than the headline figure might suggest. Consumer spending growth remains subdued, business investment fell for the second quarter in a row, and a net trade dragged sharply on growth due to a sharp drop in exports.

Brexit Update

Brexit Update: The Scottish Government (SG) has called for more power and resources to be transferred to the Scottish Parliament to guarantee food safety and standards after Brexit because of concerns that in the event of a “no deal” the UK Government will mitigate potential border delays by minimising customs checks for food and feed imports.  Following the Salzburg Summit last week, the Prime Minister Theresa May acknowledged the “impasse” in Brexit negotiations and called on the EU27 to negotiate on the detail of the Chequers proposals. She rejected the idea of Britain remaining in the European Economic Area and reiterated that she would rather have “no deal” than a “bad deal”.  The Government followed up by publishing more technical notices, which provide guidance for UK firms and citizens in the event of a “no deal” Brexit.  These include notices for UK-EU flights; importing & exporting animals & animal productsimporting & exporting plants & plant products; producing & labelling food; producing & processing organic food; and producing food and drink products protected by “geographical indicators”.  Publication of the notices coincided with a Defra warning urging farmers to remain vigilant for bluetongue virus after the disease was identified in 2 cattle imported from France through the UK’s post-import testing regime. [Sources: SG website 26 Sept, DExEU & Defra websites 24 Sept. & Downing St website 21 Sept. 2018]

Defra Minister for EU Exit Readiness appointed
David Rutley was appointed as a Defra Minister with responsibility for EU exit readiness and the food chain on 3 September, in addition to his existing responsibilities as a Government Whip.  Siin Fein described the appointment as a “clear admission…that any Brexit outcome will be an economic disaster.”

Other News

Local Authorities invited to apply for “Trailblazer” obesity funding: The Government is inviting Local Authorities to submit proposals for tackling childhood obesity to its “Trailblazer programme”, under which up to 12 Local Authorities will be supported to develop practical plans from which 5 will be selected for funding next year. These Trailblazer Local Authorities will then receive expert advice and £100,000 per year in funding to support their plans for tackling obesity. The experience of these trailblazer plans will then be used to help shape national policy. This announcement follows the publication of Labour party analysis which shows that 130 out of 152 Local Authorities (85%) plan to reduce their public health budgets in 2018/19 reducing the funds spent on it by £96.3m compared to 2017/18.

 

Public Health England: has updated its advice around fresh tuna such that it will no longer be recommended as an oily fish. This is because the latest evidence shows that fresh tuna does not contain levels of polyunsaturated fatty acids comparable with oily fish such as salmon and mackerel. In fact, levels are more comparable to those fish considered non-oily. PHE has updated its ‘Eatwell Guide’ booklet and ‘Quick guide to the government’s healthy eating recommendations’ to reflect this new advice

 

The Federation of Bakers: is delighted to welcome a new associate member, The Ice Co. The Ice Co is Europe’s leading ice manufacturer supplying a range of quality ice products to retail, wholesale, hotels, bars and restaurants.  They also supply ice to bakery manufacturers where it is used to cool and speed up production. The company was founded in 1860 by Joseph Marr whose fishing fleet needed to keep their catch cold whilst at sea so he started importing glacial ice from Norway.  Today The Ice Co has grown to be Europe’s leading manufacturer of ice with products including Party Ice, the UKs No1 ice product.  With a passion for all things icy, the business is still family owned and is now led by the sixth generation who are all very proud to make the finest quality ice products.  Ice is no longer imported from Norway but manufactured in the UK using super modern, state of the art purification and production techniques.