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Pound nervous as UK economy grows by 0.3% in second quarter - business live Pound nervous as UK economy grows by 0.3% in second quarter - business live
(35 minutes later)
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More UK recession talk:
Greater-than-evens chance UK will enter technical #recession, says @fathommacro, citing latest data pic.twitter.com/S5ZJLGW3lv
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Today’s mini-recovery in sterling is hardly convincing. Connor Campbell, financial analyst at Spreadex, said:Today’s mini-recovery in sterling is hardly convincing. Connor Campbell, financial analyst at Spreadex, said:
The bar has been set so low for the pound this week that the confirmation of a measly 0.3% Q2 GDP reading gave the currency a helping hand.The bar has been set so low for the pound this week that the confirmation of a measly 0.3% Q2 GDP reading gave the currency a helping hand.
Investors clearly weren’t ready to take a look at the ins and outs of the GDP report – household spending growth is at its lowest since the end of 2014, while business investment plunged from 0.6% in Q1 to 0.0% in Q2. Instead ignoring all this cable climbed 0.1%, flopping back over $1.28, while against the euro the pound jumped 0.4%. As ever it is important to note that kind of growth barely begins to scratch the surface of the losses suffered by the pound against its Eurozone peer this summer, with sterling still stuck under €1.09.Investors clearly weren’t ready to take a look at the ins and outs of the GDP report – household spending growth is at its lowest since the end of 2014, while business investment plunged from 0.6% in Q1 to 0.0% in Q2. Instead ignoring all this cable climbed 0.1%, flopping back over $1.28, while against the euro the pound jumped 0.4%. As ever it is important to note that kind of growth barely begins to scratch the surface of the losses suffered by the pound against its Eurozone peer this summer, with sterling still stuck under €1.09.
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The pound may be edging up after the GDP data, but trade weighting sterling - a measure based on how much trade is done with different countries and in various currencies - is close to a record low.The pound may be edging up after the GDP data, but trade weighting sterling - a measure based on how much trade is done with different countries and in various currencies - is close to a record low.
At the moment it is up 0.27% at 74.8, but is not far off the trough of 73.3 reached in December 2008 during the financial crisis. The pound has been hit by continuing concerns about the Brexit negotiations, as well as recent strength in the euro.At the moment it is up 0.27% at 74.8, but is not far off the trough of 73.3 reached in December 2008 during the financial crisis. The pound has been hit by continuing concerns about the Brexit negotiations, as well as recent strength in the euro.
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Retail sales weakest since July 2016 - CBIRetail sales weakest since July 2016 - CBI
More signs of weak UK consumer spending.More signs of weak UK consumer spending.
Retail sales are at their weakest since July 2016 according to the latest CBI report. Its distributive trades survey showed a retail sales balance of -10, compared to +22 in July and the expectation of a figure of +14.Retail sales are at their weakest since July 2016 according to the latest CBI report. Its distributive trades survey showed a retail sales balance of -10, compared to +22 in July and the expectation of a figure of +14.
Anna Leach, CBI Head of Economic Intelligence, said:Anna Leach, CBI Head of Economic Intelligence, said:
Despite the warmer weather at the start of the month, retail sales have cooled as higher inflation continues to squeeze consumers’ pockets. Meanwhile, deteriorating sentiment regarding the business situation has combined with falling headcount among retailers.Despite the warmer weather at the start of the month, retail sales have cooled as higher inflation continues to squeeze consumers’ pockets. Meanwhile, deteriorating sentiment regarding the business situation has combined with falling headcount among retailers.
Looking ahead, firms do expect sales growth to recover, but the pressures on household budgets are set to persist, given little sign of wages picking up.Looking ahead, firms do expect sales growth to recover, but the pressures on household budgets are set to persist, given little sign of wages picking up.
The CBI said:The CBI said:
Grocers saw stable sales on the year, following strong growth last month, and footwear and leather performed well, whilst specialist food and drink stores reported another month of significantly falling sales.Grocers saw stable sales on the year, following strong growth last month, and footwear and leather performed well, whilst specialist food and drink stores reported another month of significantly falling sales.
Year-on-year internet sales growth slowed, edging further below the long-run average, but growth is expected to pick up next month.Year-on-year internet sales growth slowed, edging further below the long-run average, but growth is expected to pick up next month.
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Richard PartingtonRichard Partington
Here is our GDP story, focusing on the weak consumer spending figures. Richard Partington reports:Here is our GDP story, focusing on the weak consumer spending figures. Richard Partington reports:
Spending by British consumers is growing at the weakest rate in almost three years, as households squeezed by rising prices tighten their belts.Spending by British consumers is growing at the weakest rate in almost three years, as households squeezed by rising prices tighten their belts.
Household spending growth slowed to 0.1% in the three months to June, the Office for National Statistics said, the slowest rate of quarterly growth since the final three months of 2014. Business investment in the British economy showed no growth at all in the second quarter.Household spending growth slowed to 0.1% in the three months to June, the Office for National Statistics said, the slowest rate of quarterly growth since the final three months of 2014. Business investment in the British economy showed no growth at all in the second quarter.
The slowdown in private consumption, which was worse than expected by City economists, comes as rising inflation and weaker levels of wage growth puts the squeeze on household budgets. The slump in the value of the pound since the UK’s vote to leave the European Union last year is also taking its toll.The slowdown in private consumption, which was worse than expected by City economists, comes as rising inflation and weaker levels of wage growth puts the squeeze on household budgets. The slump in the value of the pound since the UK’s vote to leave the European Union last year is also taking its toll.
Howard Archer, the chief economic adviser to the EY Item Club, said: “Consumer spending is likely to be pressurised through the latter months of the year by an ongoing appreciable squeeze on purchasing power. Indeed, real incomes growth is likely to remain negative for some months to come.”Howard Archer, the chief economic adviser to the EY Item Club, said: “Consumer spending is likely to be pressurised through the latter months of the year by an ongoing appreciable squeeze on purchasing power. Indeed, real incomes growth is likely to remain negative for some months to come.”
Some of the fall in household spending could be down to consumers shifting their car purchases to beat a tax change earlier this year, according to analysts at Capital Economics. “We remain optimistic that a modest acceleration in growth in the second half of the year is in prospect,” said Paul Hollingworth, UK economist at the consultancy.Some of the fall in household spending could be down to consumers shifting their car purchases to beat a tax change earlier this year, according to analysts at Capital Economics. “We remain optimistic that a modest acceleration in growth in the second half of the year is in prospect,” said Paul Hollingworth, UK economist at the consultancy.
The full story is here:The full story is here:
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Phillip InmanPhillip Inman
Guardian economics writer Phillip Inman says the lack of an export surge in the latest GDP figures to counter higher priced imports has left Britain with a trade problem:Guardian economics writer Phillip Inman says the lack of an export surge in the latest GDP figures to counter higher priced imports has left Britain with a trade problem:
A significant depreciation of sterling in the wake of the Brexit vote was expected to boost exports. It has a little, but not enough to offset the extra cost from more expensive raw materials.A significant depreciation of sterling in the wake of the Brexit vote was expected to boost exports. It has a little, but not enough to offset the extra cost from more expensive raw materials.
It means that the latest figures for second quarter GDP show that net trade was zero, putting a drag on GDP growth. And it has dragged since sterling first began to depreciate at the end of 2015.It means that the latest figures for second quarter GDP show that net trade was zero, putting a drag on GDP growth. And it has dragged since sterling first began to depreciate at the end of 2015.
As Samuel Tombs, UK economist at Pantheon Macroeconomics points out, this contrasts with the boost to GDP from net trade that has followed every depreciation in the pound since the second world war.As Samuel Tombs, UK economist at Pantheon Macroeconomics points out, this contrasts with the boost to GDP from net trade that has followed every depreciation in the pound since the second world war.
The reason could be that Brexit uncertainty has encouraged a degree of reticence among exporters. But more likely, the explanation lies in the changing nature of supply chains that send parts all over the world and back again, turning almost every component in a manufactured good into an import at some stage of the process.The reason could be that Brexit uncertainty has encouraged a degree of reticence among exporters. But more likely, the explanation lies in the changing nature of supply chains that send parts all over the world and back again, turning almost every component in a manufactured good into an import at some stage of the process.
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The fluctuations in the pound continue.The fluctuations in the pound continue.
Sterling has now risen 0.17% to $1.2820 while it is 0.31% better against the euro at €1.0873.Sterling has now risen 0.17% to $1.2820 while it is 0.31% better against the euro at €1.0873.
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More reaction to the GDP numbers:More reaction to the GDP numbers:
Lee Hopley, chief economist at manufacturers’ organisation EEF:Lee Hopley, chief economist at manufacturers’ organisation EEF:
Today’s GDP revisions tell a familiar story for the UK economy for the first half of this year. We’ve got weaker growth – relative to both our performance in the past couple of years and increasingly our developed world counterparts. The most recent three months growth has been almost entirely reliant on spending by households and government, and depending too much on the former looks risky given the continuing squeeze on real incomes.Today’s GDP revisions tell a familiar story for the UK economy for the first half of this year. We’ve got weaker growth – relative to both our performance in the past couple of years and increasingly our developed world counterparts. The most recent three months growth has been almost entirely reliant on spending by households and government, and depending too much on the former looks risky given the continuing squeeze on real incomes.
Another quarter passes without any sustained positive contribution from either net trade or business investment, which doesn’t feel like the most stable of foundations for a post-Brexit economy. While businesses will continue to grapple with Brexit related uncertainty the need for a clear industrial strategy to spur investment and capitalise on growth in world markets is becoming ever clearer.”Another quarter passes without any sustained positive contribution from either net trade or business investment, which doesn’t feel like the most stable of foundations for a post-Brexit economy. While businesses will continue to grapple with Brexit related uncertainty the need for a clear industrial strategy to spur investment and capitalise on growth in world markets is becoming ever clearer.”
Ian Stewart, chief economist at Deloitte:Ian Stewart, chief economist at Deloitte:
The post-referendum drop in the pound has knocked consumer spending and hit growth. UK exporters are upbeat, but this has not yet to translate into stronger export volumes. Over the next 18 months the UK will likely see subpar growth, but exports and manufacturing can help offset the headwinds from a weaker consumer.The post-referendum drop in the pound has knocked consumer spending and hit growth. UK exporters are upbeat, but this has not yet to translate into stronger export volumes. Over the next 18 months the UK will likely see subpar growth, but exports and manufacturing can help offset the headwinds from a weaker consumer.
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UK is slowest growing G7 economy this yearUK is slowest growing G7 economy this year
The UK is the slowest growing G7 economy this year, with the Brexit risk dampening business investment and the pound’s fall hurting consumers more than it helped exports, according to Pantheon Macroeconomics.The UK is the slowest growing G7 economy this year, with the Brexit risk dampening business investment and the pound’s fall hurting consumers more than it helped exports, according to Pantheon Macroeconomics.
Chief UK economist Samuel Tombs said:Chief UK economist Samuel Tombs said:
Looking ahead, we expect the economy to continue to struggle, with GDP rising by just 0.2% in both Q3 and Q4. Recent surveys of export orders have picked up, but exporters are too reliant on imports for net trade to fully offset a further slowdown in consumers’ spending. Indeed, CPI inflation still has further to climb, and the sharp fall in consumers’ confidence over the last two months suggests that households won’t continue to cut their saving rate. Meanwhile, we expect Brexit risk to increasingly bear down on business investment as the UK’s exit date draws nearer.Looking ahead, we expect the economy to continue to struggle, with GDP rising by just 0.2% in both Q3 and Q4. Recent surveys of export orders have picked up, but exporters are too reliant on imports for net trade to fully offset a further slowdown in consumers’ spending. Indeed, CPI inflation still has further to climb, and the sharp fall in consumers’ confidence over the last two months suggests that households won’t continue to cut their saving rate. Meanwhile, we expect Brexit risk to increasingly bear down on business investment as the UK’s exit date draws nearer.
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UK could see "recession in 2018"UK could see "recession in 2018"
Here’s some commentary on the GDP figures:Here’s some commentary on the GDP figures:
Jeremy Cook, chief economist at WorldFirst:Jeremy Cook, chief economist at WorldFirst:
Consumption, the engine of UK growth for decades, looks like it is finally starting to slow in response to the reality that the post-EU referendum economy now faces.Consumption, the engine of UK growth for decades, looks like it is finally starting to slow in response to the reality that the post-EU referendum economy now faces.
Consumers are tightening their belts in the face of higher prices and lower wage settlements while businesses, unable to protect margins given higher input costs, are holding back on investment as the nature of the UK’s trading relationships with the world is left in flux.Consumers are tightening their belts in the face of higher prices and lower wage settlements while businesses, unable to protect margins given higher input costs, are holding back on investment as the nature of the UK’s trading relationships with the world is left in flux.
The pound has slipped in response to today’s figures and the pressures that the UK economy is under are not dissipating anytime soon. We expect that we will be talking about a recession in 2018.The pound has slipped in response to today’s figures and the pressures that the UK economy is under are not dissipating anytime soon. We expect that we will be talking about a recession in 2018.
Jasper Lawler, head of research at London Capital Group:Jasper Lawler, head of research at London Capital Group:
UK second quarter GDP has come in line with expectations at an unchanged 0.3% quarter on quarter from the first reading. Perhaps more significantly, separate figures show total business investment in the UK has stalled to zero after 0.6% previously.UK second quarter GDP has come in line with expectations at an unchanged 0.3% quarter on quarter from the first reading. Perhaps more significantly, separate figures show total business investment in the UK has stalled to zero after 0.6% previously.
Although the headline figure remains the same, there has been some shuffle amongst the internals. Perhaps most worryingly, consumer spending has risen 0.1%, the least since the 4th quarter of 2014. Increased government spending made up some of the deficit while net trade had no impact.Although the headline figure remains the same, there has been some shuffle amongst the internals. Perhaps most worryingly, consumer spending has risen 0.1%, the least since the 4th quarter of 2014. Increased government spending made up some of the deficit while net trade had no impact.
Sluggish growth adds credence to the notion of the UK economy nearing a Brexit-induced cliff-edge. Recent signs of falling business confidence become of particular concern when they translate into the ‘hard data’. Nonetheless, while UK growth trudges along at a slow pace, the Bank of England will view it as offset by above-target inflation. The decision whether to raise rates is still finely balanced and we expect the Bank of England to continue to do what they know best, nothing.Sluggish growth adds credence to the notion of the UK economy nearing a Brexit-induced cliff-edge. Recent signs of falling business confidence become of particular concern when they translate into the ‘hard data’. Nonetheless, while UK growth trudges along at a slow pace, the Bank of England will view it as offset by above-target inflation. The decision whether to raise rates is still finely balanced and we expect the Bank of England to continue to do what they know best, nothing.
Nancy Curtin, chief investment officer at Close Brothers Asset Management:Nancy Curtin, chief investment officer at Close Brothers Asset Management:
The UK’s economy continues to rumble on despite threats of the Brexit bogeyman on the horizon. The small rise in wage growth has been negated by inflation and the effect of sustained price rises is taking a bite out of consumer spending power. Fears of cheap consumer debt fuelling spending is proving to be a thorn in the Bank of England’s side as it tries to navigate the potential need for a rate rise.The UK’s economy continues to rumble on despite threats of the Brexit bogeyman on the horizon. The small rise in wage growth has been negated by inflation and the effect of sustained price rises is taking a bite out of consumer spending power. Fears of cheap consumer debt fuelling spending is proving to be a thorn in the Bank of England’s side as it tries to navigate the potential need for a rate rise.
James Smith, economist at ING Bank:James Smith, economist at ING Bank:
Second quarter UK GDP remained unrevised at 0.3%, but what matters today are the underlying growth drivers - and on consumption, the news isn’t encouraging.Second quarter UK GDP remained unrevised at 0.3%, but what matters today are the underlying growth drivers - and on consumption, the news isn’t encouraging.
Having grown fairly consistently at a rate of 0.7-0.8% each quarter in 2016, consumer spending slumped to a two and a half year low of just 0.1% quarter on quarter. This result is particularly worrying, given retail sales data had suggested the combination of a late Easter and the second warmest June on record had given retailers temporary respite from the household income squeeze.Having grown fairly consistently at a rate of 0.7-0.8% each quarter in 2016, consumer spending slumped to a two and a half year low of just 0.1% quarter on quarter. This result is particularly worrying, given retail sales data had suggested the combination of a late Easter and the second warmest June on record had given retailers temporary respite from the household income squeeze.
But today’s data does support the findings of other data providers - notably Visa and the British Retail Consortium - who have suggested that recent months have been particularly slow for spending as consumers cut back on non-essentials.But today’s data does support the findings of other data providers - notably Visa and the British Retail Consortium - who have suggested that recent months have been particularly slow for spending as consumers cut back on non-essentials.
Of course, today’s GDP data is fairly backwards-looking - so the question now is whether the squeeze on household incomes has peaked as Deputy Bank of England Governor Broadbent suggested recently.Of course, today’s GDP data is fairly backwards-looking - so the question now is whether the squeeze on household incomes has peaked as Deputy Bank of England Governor Broadbent suggested recently.
We think inflation will continue to edge closer to 3% towards the end of this year as the remainder of the pound’s depreciation filters through. Meanwhile, wage growth looks set to hover around 2% as firms grapple with elevated uncertainty, higher import costs and slowing economic momentum. For similar reasons, investment remained flat in the second quarter and is unlikely to stage a strong recovery over the next couple of quarters.We think inflation will continue to edge closer to 3% towards the end of this year as the remainder of the pound’s depreciation filters through. Meanwhile, wage growth looks set to hover around 2% as firms grapple with elevated uncertainty, higher import costs and slowing economic momentum. For similar reasons, investment remained flat in the second quarter and is unlikely to stage a strong recovery over the next couple of quarters.
Putting all of that that together, we suspect growth will remain stay sluggish for at least the next few months. This limits the chances of a Bank of England rate hike this year or early next.Putting all of that that together, we suspect growth will remain stay sluggish for at least the next few months. This limits the chances of a Bank of England rate hike this year or early next.
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The revised growth figures showed the service sector was the biggest riser, up 0.5% quarter on quarter.The revised growth figures showed the service sector was the biggest riser, up 0.5% quarter on quarter.
Otherwise production fell by 0.3%, construction dropped by 1.3% and agriculture decreased by 0.4%.Otherwise production fell by 0.3%, construction dropped by 1.3% and agriculture decreased by 0.4%.
Overall the service sector was the only positive contributor to GDP growth:Overall the service sector was the only positive contributor to GDP growth:
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The pound is struggling in the wake of the revised GDP figures.The pound is struggling in the wake of the revised GDP figures.
Against the dollar it has slipped back from its earlier (unconvincing) gains, 0.09% down at $1.2787.Against the dollar it has slipped back from its earlier (unconvincing) gains, 0.09% down at $1.2787.
But it is holding a 0.08% gain against the euro to €1.0848. David Cheetham, chief market analyst at XTB, said:But it is holding a 0.08% gain against the euro to €1.0848. David Cheetham, chief market analyst at XTB, said:
The slight improvement [in GDP from the first quarter] has done little to alter the fortunes of the pound with the currency falling to its lowest level since June against the US dollar this morning and sterling remains close to its 8 year low against the Euro (if we exclude the flash crash last October when prices were erratic).The slight improvement [in GDP from the first quarter] has done little to alter the fortunes of the pound with the currency falling to its lowest level since June against the US dollar this morning and sterling remains close to its 8 year low against the Euro (if we exclude the flash crash last October when prices were erratic).
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Business investment drops sharplyBusiness investment drops sharply
Within the GDP figures, business investment stands out.Within the GDP figures, business investment stands out.
It was flat during the quarter compared to a 0.6% rise in the first three months of the year and expectations of a 0.4% increase. In the event the outcome was the weakest since the fourth quarter of last year.It was flat during the quarter compared to a 0.6% rise in the first three months of the year and expectations of a 0.4% increase. In the event the outcome was the weakest since the fourth quarter of last year.
However capital investment was stronger than expected at 0.7%. Kathleen Brooks, research director at City Index, said:However capital investment was stronger than expected at 0.7%. Kathleen Brooks, research director at City Index, said:
Business investment was flat, however capital investment was stronger than expected. One would expect business to be cautious ahead of the Brexit negotiations, however, the fact that capital investment (ie, building things) is stronger than expected is good news, and suggests that some investors are willing to look through Brexit to our future outside of the EU.Business investment was flat, however capital investment was stronger than expected. One would expect business to be cautious ahead of the Brexit negotiations, however, the fact that capital investment (ie, building things) is stronger than expected is good news, and suggests that some investors are willing to look through Brexit to our future outside of the EU.
Government spending was also better than forecast at 0.6% rather than 0.3%.Government spending was also better than forecast at 0.6% rather than 0.3%.
But consumer spending was just 0.1% quarter on quarter, while exports rose by only 0.7% rather than the 1% expected. Brooks said:But consumer spending was just 0.1% quarter on quarter, while exports rose by only 0.7% rather than the 1% expected. Brooks said:
This is likely to leave investors concerned that the UK export sector may never be able to benefit from nothing to GDP last quarter.This is likely to leave investors concerned that the UK export sector may never be able to benefit from nothing to GDP last quarter.
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UK economy grows by 0.3% in second quarterUK economy grows by 0.3% in second quarter
BREAKING NEWS:BREAKING NEWS:
The UK economy grew by 0.3% in the three months to June, in line with initial estimates. This equates to annual growth of 1.7%.The UK economy grew by 0.3% in the three months to June, in line with initial estimates. This equates to annual growth of 1.7%.
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Spain's economy continues strong growthSpain's economy continues strong growth
Spain’s economy grew by 0.9% in the second quarter compared to the first, new figures have confirmed.Spain’s economy grew by 0.9% in the second quarter compared to the first, new figures have confirmed.
This is a rise from 0.8% in the first quarter and equates to annual growth of 3.1%. Geoffrey Minne at ING said:This is a rise from 0.8% in the first quarter and equates to annual growth of 3.1%. Geoffrey Minne at ING said:
Spanish growth is not only strong and impressive, but it also seems to be on a more sustainable footing than it was before the housing crisis. The combination of strong domestic demand and a positive contribution of external demand should lead GDP growth to top 3% for a third consecutive year. To repeat this result in 2018, several political issues will need to be resolved, notably in Catalonia.Spanish growth is not only strong and impressive, but it also seems to be on a more sustainable footing than it was before the housing crisis. The combination of strong domestic demand and a positive contribution of external demand should lead GDP growth to top 3% for a third consecutive year. To repeat this result in 2018, several political issues will need to be resolved, notably in Catalonia.
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French business confidence risesFrench business confidence rises
Earlier, a new report showed a rise in French business confidence, with morale in the industrial sector hitting a near ten year high.Earlier, a new report showed a rise in French business confidence, with morale in the industrial sector hitting a near ten year high.
According to statistics office INSEE, the overall confidence index rose to 109 from 108 in July with the industrial figure rising from 108 to 111, its best level since December 2007. Economist Julien Manceaux at ING Bank said:According to statistics office INSEE, the overall confidence index rose to 109 from 108 in July with the industrial figure rising from 108 to 111, its best level since December 2007. Economist Julien Manceaux at ING Bank said:
Business climate indicators by INSEE showed another improvement for August this morning. The trend is led by manufacturing but confidence in the service sector remains very high. The main disappointing points in this release were the weaker hiring intentions shown in the service survey while future retail sales prospects declined strongly...Business climate indicators by INSEE showed another improvement for August this morning. The trend is led by manufacturing but confidence in the service sector remains very high. The main disappointing points in this release were the weaker hiring intentions shown in the service survey while future retail sales prospects declined strongly...
All in all, this week’s surveys are an indication of the continuing recovery in France, especially in manufacturing. French growth – having slowed from 1.2% in 2015 to 1.1% in 2016 - is set to rebound to 1.5% in 2017. Afterwards, if the new Government can take profit from the accelerating recovery to implement reforms, GDP growth could accelerate towards 1.7% in 2018.All in all, this week’s surveys are an indication of the continuing recovery in France, especially in manufacturing. French growth – having slowed from 1.2% in 2015 to 1.1% in 2016 - is set to rebound to 1.5% in 2017. Afterwards, if the new Government can take profit from the accelerating recovery to implement reforms, GDP growth could accelerate towards 1.7% in 2018.
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Not expecting any revision to weak Q2 #UK #GDP but wouldn't be surprised if weak net #export performance continues https://t.co/Gt0O6y2TtDNot expecting any revision to weak Q2 #UK #GDP but wouldn't be surprised if weak net #export performance continues https://t.co/Gt0O6y2TtD
1. UK Q2 #GDP growth out today. Lots of focus on consumers & investment, but so far it's net trade & inventories combo that's been the drag. pic.twitter.com/LvXvTZsHiM1. UK Q2 #GDP growth out today. Lots of focus on consumers & investment, but so far it's net trade & inventories combo that's been the drag. pic.twitter.com/LvXvTZsHiM
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