GDP: Growth in the UK economy has slowed to its lowest rate in almost a decade, the Office for National Statistics said. Year-on-year GDP growth slowed to 1% in the three months to the end of September – the lowest since the first three months of 2010.
Even so, the economy has avoided recession after expanding 0.3% in the three months to the end of September. The economy had shrunk in the second quarter and two quarters of contraction would have signalled a recession.
In the three months to the end of September, though, the economy did not grow as fast as the 0.4% forecast by economists, including at the Bank of England. A statistician at the ONS said: “GDP grew steadily in the third quarter, mainly thanks to a strong July.
“Services again led the way, with construction also performing well. Manufacturing failed to grow, as falls in many industries were offset by car production bouncing back following April shutdowns. Looking at the picture over the last year, growth slowed to its lowest rate in almost a decade.
The underlying trade deficit narrowed, mainly due to growing exports of both goods and services.”
In the month of September, GDP fell by 0.1%, as had been expected. But the ONS revised down the contraction in August to 0.2% from 0.1%. It was the growth of 0.3% in July that drove the economy in the whole of the third quarter.
John Hawksworth, chief economist at PWC, said: “The fact that growth was positive in the third quarter was largely due to a strong July. Output then fell back in August and September, which points to a lack of momentum in the economy going into the fourth quarter.”
There was no evidence of stockpiling ahead of the Brexit deadline, on 31 October, economists said.
Samuel Tombs, economist at Pantheon Macroeconomics, said he had expected a boost to GDP growth from preparations ahead of the now-abandoned Brexit deadline. “It possible that stockpiling occurred to a greater extent at the start of the fourth quarter,” he said.
Ruth Gregory, senior UK economist at Capital Economics, said that while the economy avoided a recession in the third quarter, the economy was “pretty soft”. “The GDP figures suggest that the economy failed to regain much momentum after the the second-quarter contraction.
While the election is just under five weeks away, clearly this isn’t the good news the government might have hoped for.”
CBI: Highlights of this month’s Economy in brief include:
- Global growth is now expected to be around 3% this year – which will be the lowest since the financial crisis – before rising to 3.4% next year
- The outlook for the global economy remains fragile, despite support from monetary easing, particularly in the US and Eurozone
- May’s deal leaves the economy 3% smaller in 10 years’ time, while Boris’s deal leaves the economy 3.5% smaller. This is compared with the nearly 6% hit to the economy in the event of no deal.
See full details in attached document: 2019-economy-in-brief-november-003
Barclays: Four Times in Five Years: The Conservative party has united around WIAB and reintegrated some of the insurgents following the vote to dissolve parliament, which suggests that the aim to approve the Withdrawal agreement (WIA) will be explicitly included in the party’s manifesto. Current polling points to a Conservative-led majority. This is likely to provide a mandate to ratify the WIA quickly and leave the UK on course to leave the EU by the end of jan’20.
Additionally, the increase in investment is likely to contribute to balance the labour market as firms balance away from labour and back into capital. Changes to the inflation profile mainly reflected the removal of the no-deal driven FX depreciation. The growth for knowledge (GFK) consumer confidence index stood at -14 in oct’19 as compared to -12 in previous month. Additionally, oct’19 has seen the highest growth towards an orderly Brexit for many months. Services purchasing manager’s index (PMI) is expected to close strong in oct’19.
The Brexit delay is expected to continue to pose a forecast dilemma as the Bank of England does not rely on a clear scenario but an average of several orderly outcomes. Also, with the elections being held on 12th dec’19, the bank will enter the usual “no-speak” period.
Further, fiscal stimulus and investment rebound may result in inflation pressures but are likely to be mitigated by the temporary nature of the rebound, higher productivity and a stronger currency. Downside risks are expected from Brexit delay following the election, as that would prolong the period of uncertainty and likely keep annualised GDP growth below 1% (y-o-y) levels.
Barclays’ global manufacturing confidence (GMC) index increased to -0.5 in oct’19. The stabilisation in manufacturing sentiment was mainly driven by developed market (DM) economies with the US and the UK leading the recovery. Despite the progress in the US-China trade negotiations, partial optimism was reflected in emerging Asia business confidence in sep’19 and proved to be premature as new export orders failed to strengthen in oct’19. With a few notable exceptions on both sides of the PMI spectrum, the manufacturing sentiment has stabilized in the range of 45-50 with a relatively low industrial recession at a global level. However, the decline in global growth from the industrial downturn is expected to diminish the industrial production (IP) momentum in q4’19; and q1’20 will likely remain weak. This is primarily due to weak global demand and elevated levels of inventories.
Less expectations regarding a no-deal Brexit and forging US-China trade deal is likely to restrain the near-term trade uncertainty and support a recovery in global business sentiment. Latest data releases in major economies indicated that domestic demand has been holding up reasonably well and could strengthen further. Moreover, the amount of monetary policy accommodation delivered by global central banks are likely to provide a substantial support to global economy, which would benefit global manufacturing activity. However, the progress on the Brexit deal remained weak due to upcoming general elections in the UK. The efficacy of monetary accommodation at later stage of business cycle in the low interest rate environment and elevated global uncertainty remains uncertain.
FDF: Business Confidence declined in food and drink sector
A survey conducted by Food and Drink Federation’s (FDF’s) members estimated how business sentiment evolved across the food and drink manufacturing sector in q3’19, in comparison to previous quarters. FDF listed the key impacts to their business in q2’19:
- according to 67% of respondents, increased cost of stockpiling in preparation for a no-deal Brexit with members spending a total of £100m had a major impact. This was followed by increased ingredients costs and an increase in average wages
- 7% of respondents stated that they were satisfied with the level of guidance offered by the UK government to help them prepare for the event, 62% were dissatisfied and 31% stated that they were neither satisfied nor dissatisfied
When asked about their concerns on the wider economy for the rest of 2019, 87% of food and drink firms predicted there would be a decrease in temporary labour supply. However, 81% stated that there would be a further increase in input costs. According to the report, net confidence declined by 20pp, as the FDF started reporting in 2018. Additionally, c.50% of respondents reported declining product margins in q3’19.