Economic News

CBI Economic Update: The CBI’s latest Industrial Trends Survey showed that manufacturing output was steady in the three months to October, relative to the three months to September. However, output is expected to be flat over the coming quarter, marking the weakest growth expectations since December 2015.

In response to the survey, Rain Newton-Smith, CBI’s Chief Economist, described the findings as a sobering set of figures demanding immediate action at home and abroad. She went on to say that planned investment is being scaled back in the face of deepening Brexit uncertainty, so it’s vital that the Chancellor incentivises manufacturers to spend in areas that will help them become more productive.

Furthermore, new domestic and export orders fell at the fastest pace in three years, and optimism regarding the business situation and export prospects also deteriorated, with the latter falling at the fastest pace in six years. Manufacturers also expect to keep cutting back on capital expenditure on both tangible and intangible areas. Additionally, concerns that access to skills and labour were likely to restrict output and investment rose to the highest in almost forty years.

The latest labour market statistics showed that employment remained flat in the three months to August 2018, for the second consecutive rolling quarter. However, this was seemingly due to another sharp rise in inactivity, with unemployment continuing to fall (by 47,000 on the quarter, to 1.36 million).

Nominal regular pay growth (excluding bonuses and before adjusting for inflation) also edged up further, to 3.1% on the year (up by 0.2% on July). Real regular pay (excluding bonuses and adjusting for CPIH inflation) also picked up, to 0.7% on a year ago (on the less volatile three-month rolling basis), the seventh consecutive quarter of growth. Nevertheless, real pay growth remains weak relative to pre-crisis norms.

With such findings, it looks like there may be some further respite for real household earnings ahead, with CPI inflation falling in September – to 2.4%, compared with 2.7% in the year to August, a sharper fall than the consensus expectations (2.6%). The slowdown in inflation was driven by food prices and transport (particularly ferry prices), recreation and culture, and clothing – much of which reflected an unwinding of upside surprises to inflation in August.  Partially offsetting upward pressures came from increases in electricity and gas prices. September’s reading contrasts with some of the stronger outturns seen in recent months, which have reflected movements in the more volatile components of inflation. Core CPI (which excludes food and fuel prices) also edged lower to 1.8% in September from 2.1% in August.

Barclays Retail sales Update:

Previous: 0.4%mm(3.4%y/y)

Consensus:-0.4%mm(3.6%y/y)

Actual;:-0.8%mm(3.0%y/y)

Sep’18 retail sales contracted -0.8% (m⁄m), (3% (y⁄y)), weaker than consensus, but broadly in line with our forecast. Food store sales volumes contracted -1.5% (m⁄m), while online retailing fell -1.3% (m⁄m). The only mildly positive component was non-food stores; however, the contribution to headline was flat. The contraction in headline sales follows on from a very strong summer where both aug’18 and jul’18 benefitted from temporary drivers. The ONS also highlights the contraction in sales of essential items (food and petrol) in contrast to the continued growth in some non-essential items such as household goods. Food sales had an exceptional boost in jul’18 due to world cup celebrations and good weather. The retail sales contribution to GDP is small as the weight in index of services and consumption are low, at just 0.07 and 0.2 respectively. The sep’18 contraction does not take away too much from the strong summer. The contribution to q3’18 IoS still rounds up to 0.1pp while the contribution to q3’18 household consumption now stands at 0.25pp (down from 0.31pp following the aug’18 bounce).

Overall the sep’18 data suggest, as we previously suspected, that as the summer boost from the world cup and hot weather fades, growth is set to converge back towards the underlying trend.

The headline retail price deflator slowed slightly in sep’18 to 1.8% (y⁄y), down 0.3pp. Online prices remained stable at 1.1% (y⁄y), while all other components slowed slightly.

Summary: retail sales contracted in sep’18 following on from strength over the summer. In line with our expectations, this suggests that as temporary drivers fade, sales are likely to converge back to the underlying trend. The contribution to q3’18 consumption is small, but remains positive, at 0.25pp

Brexit Update 

CBI Brexit Update: Last week, UK and EU negotiators failed to reach an agreement on the Northern Ireland border which has led to an impasse in Brexit talks – but progress is still possible. With over 95% of the withdrawal agreement complete, the CBI will continue to work with negotiators to safeguard economic prosperity and avert a dangerous cliff edge for businesses.

Read the CBI’s reaction to the European Council meeting here

There is a clear need for compromise on both sides to agree the Withdrawal Agreement and secure the transition period. With each week that passes, firms are accelerating their contingency planning, diverting investment and costing jobs. All efforts should focus on securing transition to relieve pressure on firms, protecting people, wages and living standards across Europe.

To examine how negotiations are impacting business, the CBI has published new research on business preparations for Brexit which highlights that ongoing uncertainty is having a negative impact on investment decisions for eight out of ten firms. And almost one in five firms say the point of no return for triggering their plans has already passed. Contingency plans include cutting jobs, adjusting supply chains outside the UK, stockpiling goods and relocating production and services overseas. Crucially, the research underlines that many firms are now planning for a ‘no deal’ scenario, with severe implications for people’s livelihoods on both sides of the Channel.

Read more about the CBI’s Brexit preparedness survey here.

In response to the research, CBI Director-General, Carolyn Fairbairn, described the situation as urgent and highlighted that the speed of negotiations is being outpaced by the reality firms are facing on the ground. She went on to say that unless a Withdrawal Agreement is locked down by December, firms will press the button on their contingency plans.

The CBI will be using the survey results to help break the political impasse. Sharing this new research with the UK government, EU member states, the Commission and sister federations across Europe to highlight the cost of a no deal. However, the CBI’s voice is only as strong as the evidence from the office and factory floor. A collective effort from businesses – large and small – is required now. The CBI is urging every business – regardless of their view on Brexit – to make their case known to their local MP at this very crucial stage of negotiations.

FDF is organising an event on 4 December: Brexit Essentials – The Guide for Food and Drink Producers. Join us as we cover supply chain, financial, workforce, and food regulation essentials. This will be focused on practical advice as we approach, with increasing trepidation, a no-deal Brexit.

Other News

CBI Apprenticeship Levy Update: Following party conference season and ahead of next week’s Budget it’s important to understand what business are asking for when it comes to reform of the Apprenticeship Levy.

The Chancellor of the Exchequer, Phillip Hammond, announced a series of measures to improve the Apprenticeship Levy at the Conservative Party Conference in Birmingham. The CBI welcomed the news but cautioned that job of reforming the Levy has only just begun.

Read the Government announcement on Levy reform.

The CBI has been campaigning for Apprenticeship Levy reform over the past 18 months, shining a light on businesses’ frustrations with the current design and the need for action to ensure it works in practice.

The government has now publicly acknowledged the need for reform, announcing three key CBI Budget recommendations as policy changes. Firstly, an increase in the amount employers can transfers to other firms; secondly, more resources to the Institute for Apprenticeships to help it to approve training schemes more quickly; and finally, a commitment to seek views on the operation of the Levy post-2020.

In response to the announcement, CBI Director-General, Carolyn Fairbairn, welcomed the news that Apprenticeship Levy reform is finally on the table. However, Carolyn went on to say that any review of the Levy post-2020 must be conducted in full and proper consultation with businesses.

Read the CBI’s full response.

Over the coming weeks, the CBI will be getting ready to respond to the consultation on the post-2020 levy. Evolving the Apprenticeship Levy into a flexible Skills Levy is crucial to the long-term prospects of employers and learners alike.

FSA update on EU discussions on food contaminants: The Food Standards Agency (FSA) has published an update on food contaminant discussions in EU Working Groups. The issues covered include acrylamide, cadmium, furan, mercury in fish and perchlorate.

US food author Marion Nestle will be publishing a new book looking at industry-funded science on 31 October, called Unsavory Truth: How Food Companies Skew the Science of What We Eat. The Guardian’s Felicity Lawrence has written a review.