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| UK economic growth rises to 0.3% in May thanks to service sector – business live | UK economic growth rises to 0.3% in May thanks to service sector – business live |
| (35 minutes later) | |
| Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), isn’t too impressed by the pick-up in growth in May. | |
| He says the UK economy remains “underwhelming”, and unbalanced -- and is also concerned that the trade gap has widened. | |
| “The latest GDP data confirms that there was a modest rally in economic activity over recent months but coming after the marked slowdown in the first quarter there is further confirmation that UK growth remains underwhelming. | |
| “The uptick in growth also masks a number of key concerns. The persistent imbalances in the UK economy remain, so while there was solid growth in the services sector, industrial production and construction sectors are adding little to overall growth. The widening in the UK’s trade deficit for the second successive month is also a concern and means that trade is likely to have been a drag on GDP in the second quarter of the year. | |
| It’s probable that the UK is past peak-trading conditions for exporters, with slowing global growth and the prospect of a trade war weighing on demand for UK goods and services. | |
| “While we still expect UK growth to have picked up in the second quarter as a whole, there remains little sign of a prolonged upswing in the UK’s growth trajectory. The current political and Brexit related uncertainty, as well as the failure to deal with longstanding issues such as weak productivity, are likely to weigh on economic activity over the near term. | |
| Bad news: Britain’s trade deficit with the rest of the world has widened. | Bad news: Britain’s trade deficit with the rest of the world has widened. |
| The ONS reports that the total UK trade deficit widened by £5.0bn in the three months ot May 2008, to £8.3bn | The ONS reports that the total UK trade deficit widened by £5.0bn in the three months ot May 2008, to £8.3bn |
| It blamed falling goods exports and rising goods imports -- a combination that scuppers the government’s attempts to narrow the trade gap. | It blamed falling goods exports and rising goods imports -- a combination that scuppers the government’s attempts to narrow the trade gap. |
| Car exports took a nasty fall during the quarter, helping to drag total exports down by £3.1bn. Imports jumped by £1.9bn during the quarter. | Car exports took a nasty fall during the quarter, helping to drag total exports down by £3.1bn. Imports jumped by £1.9bn during the quarter. |
| The ONS says that vehicle sales to the US, Oman and Australia all shrank -- which looks like a blow to attempts to build Global Britain after Brexit. | The ONS says that vehicle sales to the US, Oman and Australia all shrank -- which looks like a blow to attempts to build Global Britain after Brexit. |
| The UK trade figures for 3 months to May do not look good. Falling car imports and rising unspecified imports mean a £5bn widening of the total trade deficit to £8.3bn... pic.twitter.com/W8v8B7iNe8 | The UK trade figures for 3 months to May do not look good. Falling car imports and rising unspecified imports mean a £5bn widening of the total trade deficit to £8.3bn... pic.twitter.com/W8v8B7iNe8 |
| Worrying chart for manufacturing in ONS stats - export growth has fallen to zero in 3 months to May. Appears to show post-Brexit vote (pound devaluation) manufacturing export boom is well and truly over. pic.twitter.com/7kd81i1kpG | Worrying chart for manufacturing in ONS stats - export growth has fallen to zero in 3 months to May. Appears to show post-Brexit vote (pound devaluation) manufacturing export boom is well and truly over. pic.twitter.com/7kd81i1kpG |
| The report also shows how dependent Britain is on trade with Europe: | The report also shows how dependent Britain is on trade with Europe: |
| The UK imported 55% of its goods from the EU and exported 51% of its goods to countries outside of the EU in the 12 months to May 2018. | The UK imported 55% of its goods from the EU and exported 51% of its goods to countries outside of the EU in the 12 months to May 2018. |
| Britain’s economy appears to have bounced back, following a “lacklustre” performance earlier this year. | Britain’s economy appears to have bounced back, following a “lacklustre” performance earlier this year. |
| So says Charles Hepworth, investment director at asset management firm GAM: | So says Charles Hepworth, investment director at asset management firm GAM: |
| “The UK economy appeared to bounce back over the last three months compared to its lacklustre performance in the first quarter of 2018. GDP grew 0.2% in the three months to the end of May with the month of May alone delivering 0.3%. The ONS has now changed how it calculates GDP. Instead of the previous quarterly estimates, it will now deliver monthly estimates along with a rolling three month number in an effort to provide more accurate numbers that aren’t so prone to revisions. | “The UK economy appeared to bounce back over the last three months compared to its lacklustre performance in the first quarter of 2018. GDP grew 0.2% in the three months to the end of May with the month of May alone delivering 0.3%. The ONS has now changed how it calculates GDP. Instead of the previous quarterly estimates, it will now deliver monthly estimates along with a rolling three month number in an effort to provide more accurate numbers that aren’t so prone to revisions. |
| “Services, accounting for 80% of the economy, predictably was where the growth was seen – retail performed strongly, with the Royal Wedding no doubt helping. | “Services, accounting for 80% of the economy, predictably was where the growth was seen – retail performed strongly, with the Royal Wedding no doubt helping. |
| Professor Costas Milas of the University of Liverpool has calculated that the new monthly GDP data released today gives a rosier picture of UK growth since the EU referendum. | Professor Costas Milas of the University of Liverpool has calculated that the new monthly GDP data released today gives a rosier picture of UK growth since the EU referendum. |
| He tells me: | He tells me: |
| I have plotted together annual GDP growth (based on the latest release of quarterly GDP data) and inferred annual growth (based on today’s release of monthly GDP data from ONS code: ECY2 ). | I have plotted together annual GDP growth (based on the latest release of quarterly GDP data) and inferred annual growth (based on today’s release of monthly GDP data from ONS code: ECY2 ). |
| The monthly data paint a much rosier picture from 2016Q3 onwards. To the extent that the MPC members decide to trust today’s monthly GDP data, it is more likely than not that they will hike in August, unless, of course, Boris Johnson and his Brexit colleagues have other ideas about the government’s fate! | The monthly data paint a much rosier picture from 2016Q3 onwards. To the extent that the MPC members decide to trust today’s monthly GDP data, it is more likely than not that they will hike in August, unless, of course, Boris Johnson and his Brexit colleagues have other ideas about the government’s fate! |
| Here’s a char showing the details: | Here’s a char showing the details: |
| This chart from Morgan Stanley shows how services drove the UK’s economic growth in the last three months: | This chart from Morgan Stanley shows how services drove the UK’s economic growth in the last three months: |
| MS’s Jacob Nell says: | MS’s Jacob Nell says: |
| The UK’s first monthly GDP print showed growth picking up in May, driven in particular by a strong services sector, helped by a partial May rebound in construction and manufacturing. | The UK’s first monthly GDP print showed growth picking up in May, driven in particular by a strong services sector, helped by a partial May rebound in construction and manufacturing. |
| Services strong, manufacturing and construction weak: While services grew strongly manufacturing and IP remained drags on growth on the 3M measure. However, manufacturing and construction bounced back partially in May. | Services strong, manufacturing and construction weak: While services grew strongly manufacturing and IP remained drags on growth on the 3M measure. However, manufacturing and construction bounced back partially in May. |
| May rebound keep August hike on track: This print is the last GDP data before the MPC’s August 2 decision. They look consistent with a solid 2Q rebound – consistent with the MPC’s 0.4%Q forecast – and keep our call for an August hike on track, we think. | May rebound keep August hike on track: This print is the last GDP data before the MPC’s August 2 decision. They look consistent with a solid 2Q rebound – consistent with the MPC’s 0.4%Q forecast – and keep our call for an August hike on track, we think. |
| Ben Brettell, Senior Economist at Hargreaves Lansdown, points out that Britain’s economy still looks unbalanced. | Ben Brettell, Senior Economist at Hargreaves Lansdown, points out that Britain’s economy still looks unbalanced. |
| The Royal wedding and some great weather boosted the economy in May, with GDP rising 0.3% on April. The economy grew 0.2% in the quarter to May..... | The Royal wedding and some great weather boosted the economy in May, with GDP rising 0.3% on April. The economy grew 0.2% in the quarter to May..... |
| While the news is undoubtedly positive, the usual concerns will no doubt surface around the bias towards the service sector, which drove the growth. Industrial production and construction both fell in the quarter, though the latter rebounded slightly in May. | While the news is undoubtedly positive, the usual concerns will no doubt surface around the bias towards the service sector, which drove the growth. Industrial production and construction both fell in the quarter, though the latter rebounded slightly in May. |
| Michael Thirkettle, chief executive of construction consulting and design agency McBains, is concerned that Britain’s building activity shrank in the last quarter (despite the recovery in May). | Michael Thirkettle, chief executive of construction consulting and design agency McBains, is concerned that Britain’s building activity shrank in the last quarter (despite the recovery in May). |
| “Today’s figures make for further depressing reading and show that construction is well and truly mired in the deep waters of recession. | “Today’s figures make for further depressing reading and show that construction is well and truly mired in the deep waters of recession. |
| UK and international companies and investors that are looking to invest in the UK are still struggling to get a read on the post-Brexit destination, meaning a reluctance to commit to new projects. | UK and international companies and investors that are looking to invest in the UK are still struggling to get a read on the post-Brexit destination, meaning a reluctance to commit to new projects. |
| In particular, the wages of scarce skilled tradespeople has been rising sharply in recent months and companies will face a further squeeze on labour with the supply of non-UK skilled workers being cut off when the UK leaves the EU – an effect, which coupled with material price increases, is squeezing margins substantially.” | In particular, the wages of scarce skilled tradespeople has been rising sharply in recent months and companies will face a further squeeze on labour with the supply of non-UK skilled workers being cut off when the UK leaves the EU – an effect, which coupled with material price increases, is squeezing margins substantially.” |
| Construction fell 1.7% in the 3-months to May but grew 2.9% in the month of May https://t.co/BGI9ujQnu9 pic.twitter.com/M83RI5cvIC | Construction fell 1.7% in the 3-months to May but grew 2.9% in the month of May https://t.co/BGI9ujQnu9 pic.twitter.com/M83RI5cvIC |
| This is from Mike Jakeman of PwC: | This is from Mike Jakeman of PwC: |
| Implications from ONS' new monthly GDP figures:-May was a much better month than February-June is likely to be better than March-August rate hike remains possible if good weather/World Cup spending outweighs Brexit/trade concerns pic.twitter.com/BeokQrR8XB | Implications from ONS' new monthly GDP figures:-May was a much better month than February-June is likely to be better than March-August rate hike remains possible if good weather/World Cup spending outweighs Brexit/trade concerns pic.twitter.com/BeokQrR8XB |
| The continued dominance of Britain’s services companies shows why the sector needs to be protected from Brexit disrupion, says Anthony Kurukgy, senior sales trader at Foenix Partners: | The continued dominance of Britain’s services companies shows why the sector needs to be protected from Brexit disrupion, says Anthony Kurukgy, senior sales trader at Foenix Partners: |
| The latest growth figures were spearheaded by the service sector, despite contraction in both production and construction industries. Last week, Prime Minister May’s ‘softer’ Brexit stance highlighted the need to protect the very sector that carries significant importance to the UK economy. | The latest growth figures were spearheaded by the service sector, despite contraction in both production and construction industries. Last week, Prime Minister May’s ‘softer’ Brexit stance highlighted the need to protect the very sector that carries significant importance to the UK economy. |
| Although somewhat lacklustre, today’s figures show that the PM’s call to protect the freedom of services at home and across the Channel should not be jeopardised. | Although somewhat lacklustre, today’s figures show that the PM’s call to protect the freedom of services at home and across the Channel should not be jeopardised. |
| Andy Bruce of Reuters shows how Britain’s economy was still reliant on service sector growth in the last three months: | Andy Bruce of Reuters shows how Britain’s economy was still reliant on service sector growth in the last three months: |
| Rebalancing? Nah. Britain back in the familiar groove of services-driven growth, which has strengthened a bit compared with early 2018. Manufacturing output fell 1.2% 3M/3M in May -- the weakest 3 months since Dec 2012. pic.twitter.com/Vk3sALUK2W | Rebalancing? Nah. Britain back in the familiar groove of services-driven growth, which has strengthened a bit compared with early 2018. Manufacturing output fell 1.2% 3M/3M in May -- the weakest 3 months since Dec 2012. pic.twitter.com/Vk3sALUK2W |
| On the other hand, Tom Stevenson, investment director for Personal Investing at Fidelity International, isn’t convinced UK interest rates will rise next month. | On the other hand, Tom Stevenson, investment director for Personal Investing at Fidelity International, isn’t convinced UK interest rates will rise next month. |
| “The first of a new-style monthly GDP report shows a continuation of an old-style economic story. | “The first of a new-style monthly GDP report shows a continuation of an old-style economic story. |
| Good weather and a Royal Wedding provided a boost to the services side of the economy in the three months to May but construction and manufacturing remain in the doldrums. The overall trend is yet to break out of the downward path it has traced since the beginning of 2017. | Good weather and a Royal Wedding provided a boost to the services side of the economy in the three months to May but construction and manufacturing remain in the doldrums. The overall trend is yet to break out of the downward path it has traced since the beginning of 2017. |
| There is nothing in today’s release to suggest that the Bank of England will be rushing to raise rates in August.” | There is nothing in today’s release to suggest that the Bank of England will be rushing to raise rates in August.” |
| John Hawksworth, chief economist at PwC, has analysed today’s data and predicts that UK growth may have picked up to 0.4% in April-June. | John Hawksworth, chief economist at PwC, has analysed today’s data and predicts that UK growth may have picked up to 0.4% in April-June. |
| He says: | He says: |
| “GDP growth in the three months to May was still relatively modest at 0.2% relative to the previous three months, but this is dragged down by the weak performance in March, when the bad weather caused GDP growth to fall to zero. Since then a revival in retail sales and other services sectors has led GDP growth to pick up steadily in April and May. Construction output also picked up strongly in May after a couple of weak months. | “GDP growth in the three months to May was still relatively modest at 0.2% relative to the previous three months, but this is dragged down by the weak performance in March, when the bad weather caused GDP growth to fall to zero. Since then a revival in retail sales and other services sectors has led GDP growth to pick up steadily in April and May. Construction output also picked up strongly in May after a couple of weak months. |
| “As a result, we estimate that growth in the second quarter will end up at around 0.4%, given signs from business surveys of continued forward momentum in services and construction in June. | “As a result, we estimate that growth in the second quarter will end up at around 0.4%, given signs from business surveys of continued forward momentum in services and construction in June. |
| “This pick-up in growth could be enough to tip the majority of the MPC towards a rate rise in August, though this is not yet a done deal given continuing uncertainties over Brexit and rising global trade tensions.” | “This pick-up in growth could be enough to tip the majority of the MPC towards a rate rise in August, though this is not yet a done deal given continuing uncertainties over Brexit and rising global trade tensions.” |
| The ONS’s head of national accounts, Rob Kent-Smith, says shopping and coding helped to drive growth in recent months. | The ONS’s head of national accounts, Rob Kent-Smith, says shopping and coding helped to drive growth in recent months. |
| Here’s his take on today’s growth figures; | Here’s his take on today’s growth figures; |
| “The first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output. | “The first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output. |
| “Retailing, computer programming and legal services all performed strongly in the three months to May while housebuilding and manufacturing both contracted. | “Retailing, computer programming and legal services all performed strongly in the three months to May while housebuilding and manufacturing both contracted. |
| Services, in particular, grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding. Construction also saw a return to growth after a weak couple of months.” | Services, in particular, grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding. Construction also saw a return to growth after a weak couple of months.” |
| Britain’s factories and builders suffered a sharp contraction in the last three months, but the service sector grew. | Britain’s factories and builders suffered a sharp contraction in the last three months, but the service sector grew. |
| UK manufacturing sector contracted by 1.2% in the three months to May, according to today’s report, thanks to “weak exports”. | UK manufacturing sector contracted by 1.2% in the three months to May, according to today’s report, thanks to “weak exports”. |
| Industrial production output (which includes energy and mining) dropped by 0.6% in the quarter. | Industrial production output (which includes energy and mining) dropped by 0.6% in the quarter. |
| Construction growth decreased by 1.7% in the quarter, as some projects were suspended due to snowy and ice weather in March. | Construction growth decreased by 1.7% in the quarter, as some projects were suspended due to snowy and ice weather in March. |
| But the services sector grew by 0.4% during the quarter - and enjoyed a strong May thanks to the better weather. | But the services sector grew by 0.4% during the quarter - and enjoyed a strong May thanks to the better weather. |
| So that all added up to growth of 0.2% in March-May, and 0.3% in May alone, up from zero growth in February-April, and 0.2% in April. | So that all added up to growth of 0.2% in March-May, and 0.3% in May alone, up from zero growth in February-April, and 0.2% in April. |
| Today’s growth report also shows that Britain’s economy flatlined in February-April, before bouncing back in May. | Today’s growth report also shows that Britain’s economy flatlined in February-April, before bouncing back in May. |
| Perhaps the most interesting finding from the first ever UK monthly GDP statistics is not that the UK economy grew in the three months to May but that it flatlined between Feb and April https://t.co/zC6uHAOACX pic.twitter.com/UzWvYtzKGo | Perhaps the most interesting finding from the first ever UK monthly GDP statistics is not that the UK economy grew in the three months to May but that it flatlined between Feb and April https://t.co/zC6uHAOACX pic.twitter.com/UzWvYtzKGo |