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UK recession fears ease as GDP returns to growth in July - business live UK recession fears ease as GDP returns to growth in July - business live
(30 minutes later)
Britain’s Federation of Small Businesses is calling for an emergency budget to help the economy avoid a Brexit-induced recession.
FSB National Chairman Mike Cherry says bosses aren’t able to plan, hire or grow their companies while there is so much uncertainty about the future and “posturing” (ouch!) in parliament.
“The very prospect of a sudden, chaotic no-deal Brexit in less than eight weeks’ time is proving enough to have a sustained chilling effect on output. That’s why the Government needs to intervene with an Emergency Brexit Budget that will take the heat off employers, support our high streets and push back premature tax changes.
“Getting our economy back on track starts with securing a pro-business Brexit deal. Three years on from the referendum, business owners are sick to the back teeth of parliamentary posturing.
Cherry also suspects that today’s growth figures could be flattered by Brexit stockpiling:
“It’s interesting to note the GDP uptick in the month of July, driven by manufacturers and construction firms.
It’s possible that stockpiling is once again having an impact but – having already been marched up the hill only to be marched back down again earlier in the year – we shouldn’t bank on a big stockpiling-linked GDP bump of the kind we saw in Q1.”
Although today’s GDP report did beat expectations, it still shows that the UK economy has been stagnant over the last quarter -- hardly a sparkling effort.
John Westwood, group managing director of Black Tower Financial Management urges caution about celebrating too much:
Today’s GDP update will be welcomed by many, especially Boris Johnson. Growth is up from -0.2% to 0%; better than all forecasts predicted.
Brexit recession fears have eased for many analysts, however I would still tread a line of caution as this may not represent the full picture.
The 0% figure still shows an economy under pressure from Brexit uncertainty.
The service sector saw a positive growth, meaning that businesses maybe preparing for the worst outcome.
Today’s news should still be a warning to analysts and businesses that Brexit is an unknown.
It’s a nice change to see the pound rallying on the back of economic data, rather than plunging in the face of a political crisis.It’s a nice change to see the pound rallying on the back of economic data, rather than plunging in the face of a political crisis.
Philip Shaw of Investec tweets:Philip Shaw of Investec tweets:
Sterling actually moving on UK fundamental news… currently trading at $1.2350. The 0.3% monthly rise in GDP in July certainly overstates the economy’s underlying momentum. Even so it has sharply reduced the risks of a Q2/Q3 recession. pic.twitter.com/s03N29ozjMSterling actually moving on UK fundamental news… currently trading at $1.2350. The 0.3% monthly rise in GDP in July certainly overstates the economy’s underlying momentum. Even so it has sharply reduced the risks of a Q2/Q3 recession. pic.twitter.com/s03N29ozjM
Our economics editor Larry Elliott writes:Our economics editor Larry Elliott writes:
The chances of the UK avoiding recession have improved following a better-than-expected 0.3% increase in activity in July.The chances of the UK avoiding recession have improved following a better-than-expected 0.3% increase in activity in July.
Data from the Office for National Statistics showed that all sectors of the economy registered growth in the month – the first of the third quarter.Data from the Office for National Statistics showed that all sectors of the economy registered growth in the month – the first of the third quarter.
Fears that Britain might slip into recession – defined as two consecutive quarters of falling gross domestic product – had been stoked by the 0.2% decline in output in the three months to June.Fears that Britain might slip into recession – defined as two consecutive quarters of falling gross domestic product – had been stoked by the 0.2% decline in output in the three months to June.
But in July the services sector – which accounts for about 80% of the economy – grew by 0.3%, while the struggling manufacturing and construction sectors also bounced back with increases in output of 0.3% and 0.5% respectively.But in July the services sector – which accounts for about 80% of the economy – grew by 0.3%, while the struggling manufacturing and construction sectors also bounced back with increases in output of 0.3% and 0.5% respectively.
Here’s Larry’s story on the GDP report:Here’s Larry’s story on the GDP report:
UK recession fears recede amid surprise economic growthUK recession fears recede amid surprise economic growth
PwC chief economist John Hawksworth also fears that a disorderly Brexit could plunge Britain into a recession.PwC chief economist John Hawksworth also fears that a disorderly Brexit could plunge Britain into a recession.
If a reasonably smooth exit from the EU can be achieved, then we remain optimistic that UK growth could bounce back to over 1% next year as business investment recovers and public spending picks up in line with the plans announced by the Chancellor last week.If a reasonably smooth exit from the EU can be achieved, then we remain optimistic that UK growth could bounce back to over 1% next year as business investment recovers and public spending picks up in line with the plans announced by the Chancellor last week.
“But if there is a disorderly Brexit, the UK economy could be tipped into recession. And if there is a prolonged period of political limbo with no clear resolution of the Brexit issue, then businesses could continue to defer major investment decisions, causing the UK economy to continue to stall.”“But if there is a disorderly Brexit, the UK economy could be tipped into recession. And if there is a prolonged period of political limbo with no clear resolution of the Brexit issue, then businesses could continue to defer major investment decisions, causing the UK economy to continue to stall.”
Today’s growth figures are a rare piece of good news for Boris Johnson (who is in Dublin today).Today’s growth figures are a rare piece of good news for Boris Johnson (who is in Dublin today).
Professor Costas Milas of Liverpool University argues the prime minister can take three steps to avoid a no-deal recession in 2020.Professor Costas Milas of Liverpool University argues the prime minister can take three steps to avoid a no-deal recession in 2020.
Today’s GDP figure provides Prime Minister Boris Johnson with an unexpected economic lifeline as it eases fears of a looming recession. Rolling-three month (quarter-on-quarter) growth is up from -0.2% in 2019 Q2 to 0% in the period from May to July 2019.Today’s GDP figure provides Prime Minister Boris Johnson with an unexpected economic lifeline as it eases fears of a looming recession. Rolling-three month (quarter-on-quarter) growth is up from -0.2% in 2019 Q2 to 0% in the period from May to July 2019.
No growth at all is better than negative growth and should help focus political minds. Indeed, a Brexit-related UK recession is far from certain and should not be too late for Boris Johnson to change course.No growth at all is better than negative growth and should help focus political minds. Indeed, a Brexit-related UK recession is far from certain and should not be too late for Boris Johnson to change course.
One way of doing this is for our Prime Minister to (a) reverse the Parliament’s shutdown, (b) invite back to his party the 21 Conservative rebels and (c) agree with Brussels a’ tweaked version’ of Mrs May’s withdrawal deal so that he can bring it back to Parliament with reasonable chances of approval.One way of doing this is for our Prime Minister to (a) reverse the Parliament’s shutdown, (b) invite back to his party the 21 Conservative rebels and (c) agree with Brussels a’ tweaked version’ of Mrs May’s withdrawal deal so that he can bring it back to Parliament with reasonable chances of approval.
Lukman Otunuga, senior research analyst at ForexTime (FXTM), points out that pound is one of the best-performing currencies today, partly thanks to the GDP figures.Lukman Otunuga, senior research analyst at ForexTime (FXTM), points out that pound is one of the best-performing currencies today, partly thanks to the GDP figures.
Not a bad start to the week for the #Pound unlike the UK weather...bulls are loving the stronger than expected #July #GDP and conciliatory tone and from #BorisJohnson on getting a deal done by 18 October...will this upside last though? #GBPUSD > 1.2320. pic.twitter.com/y0Dg8aXAppNot a bad start to the week for the #Pound unlike the UK weather...bulls are loving the stronger than expected #July #GDP and conciliatory tone and from #BorisJohnson on getting a deal done by 18 October...will this upside last though? #GBPUSD > 1.2320. pic.twitter.com/y0Dg8aXApp
Paul Dales of Capital Economics suspects a new burst of Brexit stockpiling may be helping the UK avoid recession.Paul Dales of Capital Economics suspects a new burst of Brexit stockpiling may be helping the UK avoid recession.
The 0.3% m/m rise in services GDP followed four months of no change and was partly due to a 1.1% m/m rise in transport and storage output.The 0.3% m/m rise in services GDP followed four months of no change and was partly due to a 1.1% m/m rise in transport and storage output.
The latter is the first real sign that businesses could be bringing activity forward ahead of the possible 31st October Brexit deadline.The latter is the first real sign that businesses could be bringing activity forward ahead of the possible 31st October Brexit deadline.
Samuel Fuller, director of Financial Markets Online, says the market reaction shows that expectations for the UK economy have fallen rather low:Samuel Fuller, director of Financial Markets Online, says the market reaction shows that expectations for the UK economy have fallen rather low:
“Seldom has stagnation seemed like such an achievement.“Seldom has stagnation seemed like such an achievement.
“Despite sharp falls in both manufacturing and construction output, Britain’s vast service sector has ridden to the rescue once more – dragging the net position up to zero.“Despite sharp falls in both manufacturing and construction output, Britain’s vast service sector has ridden to the rescue once more – dragging the net position up to zero.
“As a result, the jury remains out on whether the UK is about to enter a recession. The prospect is perilously close but not yet inevitable.“As a result, the jury remains out on whether the UK is about to enter a recession. The prospect is perilously close but not yet inevitable.
The BBC’s Faisal Islam reckons the UK will avoid falling into a recession this autumn.The BBC’s Faisal Islam reckons the UK will avoid falling into a recession this autumn.
Monthly GDP figures just out - in July up 0.3%, from 0 in June. In the three months to July - zero growth. But strongly suggesting return to growth in Q3, albeit Q3 hasn't finished yet - so recession not looking likely. https://t.co/E1r1l1Ide7Monthly GDP figures just out - in July up 0.3%, from 0 in June. In the three months to July - zero growth. But strongly suggesting return to growth in Q3, albeit Q3 hasn't finished yet - so recession not looking likely. https://t.co/E1r1l1Ide7
Sam Tombs of Pantheon Economics points out that July was the strongest month for growth since January.Sam Tombs of Pantheon Economics points out that July was the strongest month for growth since January.
The 0.3% m/m rise in UK GDP in July is the strongest since January and wasn't obviously assisted by any one-off stimuli. Quarter-on-quarter growth on track for 0.4% in Q3 → so emphatically no recession, and no Bank Rate cuts coming soon (at least this side of Brexit). pic.twitter.com/6Tgdsc2SZiThe 0.3% m/m rise in UK GDP in July is the strongest since January and wasn't obviously assisted by any one-off stimuli. Quarter-on-quarter growth on track for 0.4% in Q3 → so emphatically no recession, and no Bank Rate cuts coming soon (at least this side of Brexit). pic.twitter.com/6Tgdsc2SZi
But Matt Whittaker of Resolution Foundation points out that the picture over the last quarter is less rosy:But Matt Whittaker of Resolution Foundation points out that the picture over the last quarter is less rosy:
Better news on the economy in today's GDP figures for July, with month-on-month growth at its strongest since January. But the 3m-on-3m picture is flat, and more timely survey data suggests activity was subdued over the summer as a whole pic.twitter.com/VXqZgaydaQBetter news on the economy in today's GDP figures for July, with month-on-month growth at its strongest since January. But the 3m-on-3m picture is flat, and more timely survey data suggests activity was subdued over the summer as a whole pic.twitter.com/VXqZgaydaQ
Today’s GDP report also shows how Brexit stockpiling has distorted growth this year.Today’s GDP report also shows how Brexit stockpiling has distorted growth this year.
As you can see, UK production spiked in March as firms scrambled to buy essential components and store finished goods, ahead of the original Brexit deadline.As you can see, UK production spiked in March as firms scrambled to buy essential components and store finished goods, ahead of the original Brexit deadline.
It then slumped in April, partly because car factories brought forward their summer shutdowns in case of a no-deal crisis.It then slumped in April, partly because car factories brought forward their summer shutdowns in case of a no-deal crisis.
The growth report has given the pound a small lift. Sterling has shaken off its earlier losses, and is now up 0.25% today at $1.231.The growth report has given the pound a small lift. Sterling has shaken off its earlier losses, and is now up 0.25% today at $1.231.
The broad picture is that Britain’s economy has weakened this year, warns Rob Kent-Smith, head of GDP at the ONS.
He points out that factories and builders both suffered falling output in the last three months, which is why there was no growth in May-July.
Kent-Smith says:
“GDP growth was flat in the latest three months, with falls in construction and manufacturing.
“While the largest part of the economy, services sector, returned to growth in the month of July, the underlying picture shows services growth weakening through 2019.
The trade deficit narrowed due to falling imports, particularly unspecified goods (including non-monetary gold), chemicals and road vehicles in the three months to July.”
Let’s dig into the detail of the GDP report.
According to the ONS, Britain’s services sector grew by 0.3% in July, providing the bulk of the growth.
But manufacturing also expanded by 0.3%, helping the wider industrial sector to grow by 0.1% during the month.
The Office for National Statistics says UK GDP remains “weak”, with no growth in the last three months (despite the recovery in July).
Newsflash: The UK economy grew by 0.3% in July.
That’s stronger than the 0.1% expected, and could dampen fears of a Brexit recession this autumn.
Over the last three months (May-July), GDP was unchanged. That’s a weak reading, but stronger than the -0.2% recorded in April-June.
More to follow!
Despite worries about the global economy, investors are pushing stock markets higher this morning.
Beijing can take the credit. Over the weekend, China’s central bank launched a new stimulus package of cheap loans, to protect its companies from the latest US tariffs.
This lifted the Shanghai exchange by 0.8%, and pushed Japan up by almost 1%.
European markets have also benefited, hitting a five-week high in early trading.
The UK isn’t alone in suffering weak growth.
The eurozone only expanded by 0.2% in April-June, Germany may be falling into recession, and the US-China trade war is causing turbulence worldwide.
This chart from economist Rupert Seggins shows how the UK has fallen towards the bottom of the global growth league over the last year, but certainly isn’t the worst economy out there:
31 out of 36 OECD countries have reported GDP figures for Q2 2019. Hungary top of the table (5.2%y/y) with Turkey at the bottom (-1.4%y/y). US top of the G7 (2.3%y/y) with Germany (0.4%y/y) & Italy (-0.1%y/y) at the bottom. UK's 1.2%y/y puts just behind France (1.4%y/y). pic.twitter.com/dJMydilgyU
This chart from Bloomberg shows how UK growth has been choppy recently, vanishing altogether in the second quarter of 2019.
Deutsche Bank’s Sanjay Raja hopes that the service sector will keep Britain out of recession this summer, telling clients:
Outside of another momentous week in politics, next week’s data docket will be very important for the economy. On Monday, we will get a first glimpse of Q3 activity with the July monthly GDP reading out in the morning.
If survey indicators are anything to go on, we should continue to see widespread weakness across the economy, with manufacturing, construction and services sectors all dropping. However, we don’t expect the economy to shrink in July. Instead, we see a modest bump in activity (0.1% m-o-m), driven in large part by the services sector. With retail spending and government consumption up in July, we think this will be enough to prop up the economy.
Here’s some grim news - Northern Ireland’s private sector economy may have already plunged into recession.
A new survey of companies across Northern Ireland has found that output and new business fell sharply in August, forcing companies to cut staff as business confidence hit a new low.
Services sector firms, manufacturers, construction companies and farmers all reported that conditions worsened last month.
This pulled the Ulster Bank Northern Ireland PMI down to 45.4 in August, a little higher than in July. This is the sixth month in a row that it has fallen below the 50-point mark that separates growth from contraction.
It’s also much weaker than the UK average of 49.7, and shows that Brexit is hurting the Northern Ireland economy. The report’s online here.
Richard Ramsey, chief economist for Northern Ireland at Ulster Bank, said Northern Ireland is the weakest-performing sector of the UK economy.
“The latest PMI provides further evidence that Northern Ireland’s private sector has entered, or is entering, recession.
Output has fallen for the sixth month in a row and exports have declined for the seventh month. Add to this an eighth successive month of falling employment and it is hard to avoid this conclusion.
“All four sectors monitored by the PMI are in decline for the fourth month running according to the latest survey. Perhaps the most concerning elements of August’s report are the pace of deterioration in business conditions within the construction and manufacturing sectors.
Construction orders plunged to an 81-month low and have now been falling consistently for 12 months.
Within manufacturing, both output and orders continue to fall markedly, and significantly this is now impacting on staffing levels. Manufacturers posted their fastest rate of job losses in over seven years during August.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
GDP measures “things you can drop” on your foot, as the old joke puts it. It’s an imperfect measure of how a country is really performing, as it ignores our well-being and cannot distinguish good economic growth from bad.
But, it’s still our best guide to the monthly fluctuations in the economy. And today we’ll learn whether Britain’s economy has moved another step closer to recession over the summer.
The UK July GDP report, due at 9.30am, is expected to show that Britain’s economy contracted slightly in the May-July period. But in July alone, it may have expanded by 0.1%, perhaps helped by another burst of Brexit stockpiling.
A month ago we learned that the UK shrank by 0.2% in April-June, putting us halfway into an official recession (two consecutive quarters of negative growth).
Today’s report will show if the situation deteriorated in the third quarter of 2019. It will include new manufacturing data, which may show British industry stagnated during July.
With business confidence weak, manufacturing output down and builders struggling, the economic picture is worrying - and depressingly reliant on consumer spending to keep the wheels moving.
The twists and turns in the Brexit saga continue to weigh the economy down.Overnight, accountancy giant KPMG warned that a no-deal Brexit would drive Britain into its first recession since the financial crisis.
KPMG predicts no-deal Brexit recession in 2020
These clouds of economic and political uncertainty are making it harder to tell what’s really going on in the UK economy. The US-China trade war, and the slowdown in the eurozone, are also hurting growth.
Daria Parkhomenko of RBC Capital Markets says forecasting UK growth is “fraught with uncertainties at present.”
Our economists note that the Q1 outturn of 0.5% q/q was boosted by stockpiling by firms ahead of the end-of-March original Brexit date. The unwind of those efforts plus car plant shutdowns in April then dragged Q2 growth lower to -0.2% q/q.
Those Brexit-induced distortions are also likely to affect Q3 GDP; whether stockpiling by firms resumes ahead of the new Brexit deadline of October 31 and how much of April’s ‘lost’ car production will now take place in August will be major influences on Q3 GDP.
The UK economy has slowed, but timing effects make it difficult to ascertain by how much.
Also coming up today
Research group Sentix’s latest eurozone investor confidence report is out today, and likely to be gloomy.
Sterling has dipped a little this morning, back to $1.227, as another day of political drama unfolds. Boris Johnson is expected to make a second, failed, attempt to trigger a snap general election today, just as the backbench bill to block no deal is expected to receive royal assent today.
Brexit: critical day for Boris Johnson as no-deal bill awaits royal assent – politics live
The agenda
9.30am BST: UK GDP report for July. Expected to show 0.1% growth in July, but -0.1% over the quarter.
9.30am BST: UK manufacturing and industrial production figures. Both expected to show a 1.0% fall year-on-year, or 0% change month-on-month in July).
9.30am BST: Sentix survey of investor confidence. Expected to drop to -14, from -13.7 in August.