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UK recession fears ease as GDP returns to growth in July - business live Pound hits six-week high as UK returns to growth in July - as it happened
(about 1 year later)
Finally, the pound’s rally has seen the FTSE 100 close 46 points lower at 7,235, down 0.65%.
Fiona Cincotta of City Index says Brexit optimism played a part, alongside the growth figures:
The FTSE languished in the red at the start of the trading week, beaten down by the strengthening pound and a slump at Primark owner AB Foods. As sterling rose to six-week highs on renewed Brexit optimism and stronger data, the multinationals on the FTSE sunk lower owing to the unfavourable exchange rate.
There was no getting way from Brexit as the new week kicked off, hardly surprising given the flow of headlines across the weekend. However, today it was Boris Johnson’s softer approach to Brexit that grabbed traders’ attention. Bojo sounding keen to get a deal done when he was speaking with the Irish Prime Minister helped boost demand for the pound, as did signs that the UK economy was holding up even as Westminster was crumbling.
In a surprise reversal of roles, CNN is accusing Donald Trump of Fake News!
In case you hear differently, CNN is having its most profitable year in history. Last month the network delivered its highest August ratings on record and won the prime time demo - beating both Fox and MSNBC. 🤦🏻‍♂️
Time for a recap.
Fears that Britain is sliding into recession have eased, after the economy posted its strongest monthly growth since January.
UK GDP rose by 0.3% in July, the ONS reported, beating City forecasts of just 0.1% growth. That suggests growth is picking up, after a worrying contraction in the spring.
But over the last three months, the country’s GDP is flat - showing that Brexit uncertainty is continuing to hold back investment.
Construction and industrial output have both fallen in the last quarter, with the service sector propping the economy up.
Economists are hopeful that the UK will grow in the current quarter (from July-September), with some speculation that Brexit stockpiling will help.
Melanie Baker, senior economist at Royal London Asset Management, explains:
“Mechanically the 0.3% rise in July very much improves the chance of the UK avoiding a technical recession this quarter.
However, combined with the picture coming from business surveys, the data still looks consistent with weak underlying growth in the UK economy as the next Brexit deadline approaches.”
The pound rallied to its highest level in six weeks after the data was published. Stronger growth makes it less likely that the Bank of England would be forced to lower interest rates back to record lows.
Optimism that a no-deal Brexit can be avoided is also supporting sterling, as parliament prepares to shut down for five weeks.
Brexit: Parliament to be prorogued tonight, Downing Street confirms – live news
Over on Wall Street, activist investor Elliott Management has taken a $3.2bn stake in telecoms giant AT&T.....and Donald Trump has weighed in.
Elliott is pushing for a strategic overhaul at the US telecoms group, saying its $80bn takeover of Time Warner has been botched.
AT&T’s shares have jumped 9% in pre-market trading to over $38 as investors welcome the move -- Elliott claims they could be worth $60 by the end of 2021, with some improved management.
It’s a significant move, but not SO important that the world’s most powerful man should automatically take an interest. President Trump, though, is interested... as it’s another opportunity to lambast CNN.
Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible “anchors.” Also, I hear that, because of its bad ratings, it is losing a fortune.....
...But most importantly, @CNN is bad for the USA. Their International Division spews bad information & Fake News all over the globe. This is why foreign leaders are always asking me, “Why does the Media hate the U.S. sooo much?” It is a fraudulent shame, & all comes from the top!
I suspect foreign leaders are more interested in geopolitical issues, such as the sudden collapse of the Afghanistan peace talks over the weekend.....
Taliban warns of more US dead after Trump says he cancelled peace talks
Anyone needing a rest after the excitement of this morning’s GDP figures should head to Heathrow Airport.
Terminal Five, usually a bustling hive of travellers, is unusually quiet today after British Airways pilots launched an unprecedented strike.
My colleague Gwyn Topham reports:
The start of a 48-hour walkout by British Airways pilots forced the national carrier to cancel virtually all flights on Monday, with no sign of a resolution ahead of more planned strikes.
Heathrow Terminal 5, BA’s main operating hub, was virtually deserted, when it would normally be bustling with passengers. BA carries about 145,000 passengers on an average day.
British Airways cancels virtually all flights on day one of pilot strike
In other news, the PPI scandal continues to rumble on.
Lloyds Banking Group has hit shareholders with another £1.8bn provision to compensate customers who were mis-sold insurance policies alongside financial products such as credit cards and mortgages.
Lloyds, like other banks, has been hit by a late surge of inquiries before last week’s deadline to get PPI claims in.
Lloyds earmarks up to £1.8bn more for PPI claims
The pound’s strength has pushed the FTSE 100 index of blue-chip London-listed shares down to a one-week low.
The Footsie has lost 45 points, or 0.6%, with most sectors down - led by healthcare firms, consumer groups, industrial companies and miners.
Relief that the UK may be dodging a recession has swept the pound up to a new six-week high.
Sterling has hit $1.2380 against the US dollar for the first time since 26 July, a couple of days after Boris Johnson beat Jeremy Hunt to the leadership of the Conservative Party.
It’s also trading at a six-week high against the euro, at €1.121.
Hopes that Britain can side-step a no-deal Brexit are also supporting sterling.
The latest word is that parliament will be prorogued (shut down) later today, until 14th October, with a snap general election possibly taking place in late November....
November 28th the new - possible date - doing the rounds for a General Election
Today’s GDP report has sent economists racing to update their forecasts.
NIESR, the think tank, now estimates that the UK will grow by 0.3% in the third quarter of 2019, returning to growth after its Q2 contraction. That’s up from 0.2% previously - underlining that July’s growth figures (+0.3%) beat forecasts.
NIESR director Dr Garry Young says:
“It looks like there has been a welcome resumption of economic growth in the third quarter, roughly offsetting the fall in the second quarter. But it is not clear how long growth will continue.
Only the services sector is expanding, primarily to meet higher demand from consumers driven by increased household incomes fuelled by rising real wages. But there is a limit to how much further real wages can grow without a pick-up in investment and productivity, and this seems unlikely in the near term.”
OUT NOW - #Economic growth resumes for now but only #services sector is expanding - Our latest monthly #NIESRGDP Tracker explains here:👇👇👇📈📊📉 https://t.co/tadO8H3zCK
Britain’s Federation of Small Businesses is calling for an emergency budget to help the economy avoid a Brexit-induced recession.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.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.“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.“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: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 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.”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.
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/s03N29ozjM
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.
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.
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:
UK recession fears recede amid surprise economic growth
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.
“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).
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.
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.
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/y0Dg8aXApp
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 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:
“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.
“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.
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/E1r1l1Ide7
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/6Tgdsc2SZi
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/VXqZgaydaQ
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.
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.