International Commercial Investment

UK economic growth picks up steam

by International Commercial Investment on September 10, 2018

Source: Financial Times

The UK’s scorching summer fuelled a recovery in retail and construction, propelling quarterly economic growth in the three months to July to its fastest pace in a year, official data showed on Monday.

The Office for National Statistics said its new measure of rolling three-month growth — comparing a three-month period with the previous three months — hit 0.6 per cent, up from 0.4 per cent in the previous quarter.

That was the strongest quarterly growth recorded since July 2017, although the figures were flattered by the unusually slow growth seen in February and March.

“It wasn’t just the mercury rising at the start of the third quarter: today’s data deluge suggests the UK economy was too,” said Lee Hopley, chief economist at the EEF manufacturers’ organisation.

The figures will vindicate policymakers at the Bank of England, who raised interest rates in August, saying they were now confident that the slowdown seen at the start of the year was due to a change in the weather, not the economic climate.

“Far from running out of steam UK activity has picked up after a very poor start to the year. Monthly data is choppy, but this pick-up shows that the UK is entering the crucial phase of the Brexit talks in better shape than seemed likely six months ago,” said Ian Stewart, chief economist at Deloitte.

George Buckley, economist at Nomura, said the figures were consistent with recent survey data and suggested the economy was performing well, given the BoE’s estimate that average annualised growth around 1.5 per cent is now the most the UK economy can sustain without fuelling inflation.

However, some economists question how durable the pick-up will prove.

It was in large part due to a sharp recovery in retail trade, which grew 2.1 per cent from the previous quarter. This could be a sign that consumers are starting to spend more freely, as the squeeze on real wages finally eases off, but separate data have shown that much of it was spending on food and drink — fuelled by the World Cup and other summer festivities — with large parts of the retail sector still afflicted by a secular shift in consumer habits.

Activity in the construction sector also grew strongly, up 3.3 per cent from the previous three-month period, although the fastest expansion came at the start of the period, when builders were still catching up with backlogs caused by the harsh winter.

Manufacturing remains the weak point in the economy, with rolling three-month growth negative for the fifth month in a row.

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International Commercial InvestmentUK economic growth picks up steam

Heatwave boosts UK GDP to 0.4% in Q2

by International Commercial Investment on September 3, 2018

Source: Investment Week

UK GDP grew by 0.4% in the second quarter of 2018, up from 0.2% in the previous quarter, according to the latest figures from the Office for National Statistics (ONS).

In the figures for the three months to the end of June, growth was driven by services and offset by a fall in production.

The figure was in line with economists’ expectations and those made by the Bank of England.

Services saw growth of 0.5% to make it the largest contributor during the quarter but there was a 0.8% contraction in production, which had a negative impact. Business investment grew by 0.5%.

Looking over the first half of the year, growth was 0.6%, unchanged from the second half of 2017.

The ONS said weather had been a factor in economic performance; poor weather contributed to low growth in the first quarter while better weather this summer provided a boost to areas such as retail and construction in the second quarter.

However, the heatwave led to a 2.7% decline in production for energy suppliers.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the Q2 figures were boosted by several summer events: “The UK economy has gathered momentum in the second half as the World Cup, the Royal Wedding and warm weather got consumers spending their pennies on beers and barbecues.

“Not everyone makes hay when the sun is shining though, with energy suppliers seeing a 2.7% decline in production as the warm weather meant reduced demand for household heating.

“In today’s economic climate 0.4% quarterly growth draws a small cheer from the crowd, though it would have been deemed below par prior to the financial crisis. In the ten years running up to the crisis, UK economic growth averaged 0.73% per quarter.

“Indeed a rather less than encouraging assessment of the UK’s economic prospects can be found in the performance of the pound, which has slipped back below $1.30 against the dollar in the last week, despite a rise in UK interest rates. Fears over the potentially negative impact of Brexit clearly play a part in this, however we shouldn’t ignore the fact this particular coin is two sided, and dollar strength is a contributing factor alongside sterling weakness.”

Nancy Curtin, chief investment officer at Close Brothers Asset Management, added a rebound in economic growth in the second quarter should be taken with a pinch of salt.

“Even with some acceleration, the economy is far from its peak. The rate of growth looks subdued in comparison to some global peers, with the US economy growing at twice the speed.

“However, it is not all doom and gloom. The consumer is beginning to look a little stronger, supported by wages growing in real terms, and the weak pound has buoyed exporters. Investors will be hoping this trend continues despite the uncertain backdrop.”

Ruth Gregory, senior UK economist at Capital Economics, continued: “Looking ahead, the surveys suggest that the economy has maintained this pace of growth at the start of Q3. Of course, Brexit-related uncertainties could intensify over the coming months, if the EU negotiations stall or if Brexit turmoil results in a general election.

“In the absence those developments, however, we remain cautiously optimistic about the economy’s ability to expand at reasonably solid rates over the remainder of the year. We expect growth of about 1.5% over 2018 as a whole – a little above the consensus expectation of 1.3%.”

Anthony Gillham, head of investment at Quilter Investors, said: “While growth has improved slightly, it does so from a low starting point. Over the medium term, UK growth has been thoroughly unspectacular, with the domestic economy expanding at a slower pace than most developed countries.

“There is a real risk of stagflation on the horizon, with the recent interest rate hike failing to address the fall in the pound, and the sentiment of Mark Carney and Liam Fox even talking the value of Sterling to its lowest point against the dollar in a year.

“The UK finds itself in a difficult situation where the Bank of England is hiking rates to try and keep a lid on import costs that drive up inflation, but it is doing so against the backdrop of weak economic growth.”

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International Commercial InvestmentHeatwave boosts UK GDP to 0.4% in Q2

UK house prices rising faster than wage increases, Halifax says

by International Commercial Investment on August 12, 2018

Source: The Guardian

A surprise spike in UK house prices in July has increased the annual rate of property inflation to 3.3%, pushing the cost of buying a home to a record high.

Halifax said house prices rose 1.4% in July alone, taking the average house price to a new record of £230,280. The annual growth rate jumped from 1.8% in June to 3.3% in July, the largest increase since last November.

The increase pushed house price inflation back above wage growth, which is currently at about 2.5% a year, and comes just days after the Bank of England raised interest rates.

Halifax said house prices are being supported by the underlying strength in the jobs market, with employment rising by 137,000 in the three months before May. Pressure on household finances is easing as wages have begun to outstrip inflation.

Although a rebound in prices will dismay those struggling to save money to buy their first home, some estate agents greeted the figures enthusiastically.

“Annual growth just exploded to a level not seen since the autumn,” said the London agents James Pendleton.

“With two negative quarters behind us, many were hoping the usually busy summer period would produce a bit of a bounce, and this is a promising start.”

But Halifax said that transaction activity “remains soft” and that it expected the number of mortgage approvals to be broadly flat during 2018.

Economists said the July figures from Halifax should be treated cautiously. Howard Archer, the chief economic adviser to the EY Item Club, said: “We remain doubtful the UK housing market is stepping up a gear. Activity is still relatively lacklustre despite coming modestly off 2018 lows, with consumer conditions challenging.”

The Halifax figures for July are significantly higher than those reported by its rival lender Nationwide. It recorded a rise of 0.6% in July compared with Halifax’s 1.4% figure. Its figure for annual house price inflation is 2.5%.

Next month’s figures will be the first to reflect the impact of the rise in Bank of England base rate to 0.75%, although few property experts are expecting a significant impact given that most households are on fixed rates.

TSB has followed Nationwide by raising its base mortgage rate by 0.25%, but giving most of its savers an uplift of just 0.1% in interest paid.

Jonathan Harris of the mortgage broker Anderson Harris said: “We don’t expect this month’s interest rate rise on its own to have too much of an impact. However, it may cause some nervousness going forward as buyers worry about the possibility of future rate rises. It is no surprise then that fixed-rate mortgages continue to be by far the most popular product as borrowers look to protect themselves against future uncertainty.”

Brexit uncertainty is likely to keep house price rises restrained, said Jonathan Hopper, managing director of Garrington Property Finders. “The future course of the market is delicately balanced. With even cabinet ministers now warning that a no-deal Brexit is more likely than an orderly exit from the EU, investment buyers are dialling up their caution.”

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International Commercial InvestmentUK house prices rising faster than wage increases, Halifax says

House prices gain momentum in July

by International Commercial Investment on August 1, 2018

Source: telegraph.co.uk

House prices gained a bit of momentum in July after rising at their slowest annual rate in five years in June, mortgage lender Nationwide said on Wednesday.

House prices across the United Kingdom were on average 2.5pc higher than in July last year, faster than growth of 2.0pc in June and above a forecast for a 1.9pc rise in a Reuters poll of economists.

In monthly terms, prices rose by 0.6pc in July from June, faster than a forecast of 0.2pc.

Nationwide said the annual increase remained in the narrow 2-3pc range of the past 12 months and the lender still expected prices to rise by only 1pc in 2018.

Britain’s housing market has slowed since the 2016 referendum decision to take the country out of the European Union. Eight months before Brexit is due to happen, Prime Minister Theresa May has still to agree with the EU about Britain’s future trading relationship with the bloc.

Nationwide economist Robert Gardner said an expected interest rate hike by the Bank of England on Thursday was likely to have only a modest impact on the housing market because most mortgages issued in recent years were on fixed interest rates.

However, around 12pc of homeowners already spend more than 30pc of their gross income on their mortgage and “for those, some of whom will be on variable rates, any rate rise will be a struggle, even though the impact on the wider economy and most households is likely to be modest”, Mr Gardner said.

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International Commercial InvestmentHouse prices gain momentum in July

U.K. Services Growth Unexpectedly Jumps as Economy Picks Up

by International Commercial Investment on July 8, 2018

Source: Bloomberg

The U.K.’s dominant services sector grew at the fastest pace in eight months in June, driving a bounce back in the nation’s economy and boosting the case for a Bank of England rate increase as soon as next month.

The unexpected gain in the gauge of activity followed reports this week showing faster growth in manufacturing and construction. IHS Markit, which publishes the surveys, said they suggest U.K. economic growth doubled to 0.4 percent in the second quarter.

That backs up the argument of BOE officials who say that the economy is rebounding after a weather-hit first quarter — a case that may be further strengthened by evidence from the survey showing that input costs also spiked in June. Markit predicts that will cause U.K. inflation, already above the BOE’s target, to climb from its current level of 2.4 percent.

The pound erased a 0.2 percent slide after the report to trade little changed at $1.3208 as of 10:25 a.m. London time.

“Stronger growth of service-sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher,” said Chris Williamson, chief business economist at Markit.

This week’s reports are the last full set of PMI readings BOE policy makers will get before they announce their next decision on Aug. 2. Officials voted 6-3 to hold rates at their June meeting, and investors are currently pricing in about a 65 percent chance of rate increase next month.

Markit said its Purchasing Managers Index for the services industry climbed to 55.1 last month, up from 54 in May and beating economists’ estimates for no change. The survey Wednesday also showed the fastest pickup in new work in 13 months, an upturn in demand for business and financial services, and evidence that the sunny weather last month boosted consumer spending.

Still, even with growth gaining momentum, there remain signs that Brexit-related uncertainty is continuing to hold back investment, Markit said. That follows a warning this week from the British Chambers of Commerce that U.K. companies are at “breaking point” over Brexit, and are delaying spending decisions as they await answers to key questions.

“It remains encouraging yet also surprising that current business activity continues to show such resilience amid relatively moribund confidence,” Williamson said. “Such a divergence between current and expected future activity stokes worries that the upturn is being fueled by short-term spending, based on hopes that uncertainty will lift, and likely masks a lack of longer-term business investment.”

More clarity on Brexit could emerge this week as Prime Minister Theresa May holds an all-day cabinet meeting at her Chequers country house on Friday. The premier is facing a fresh showdown with pro-Brexit lawmakers in her party over plans to keep the U.K. closely tied to European Union rules for trading goods after Brexit, according to people familiar with the matter.

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International Commercial InvestmentU.K. Services Growth Unexpectedly Jumps as Economy Picks Up

Property prices are still rising

by International Commercial Investment on July 2, 2018

Source: The Express

House prices jumped by 1.5 percent month-on-month in May following a 3.1 percent decline in April, according to an index. Halifax said the average UK house price is now £224,439.

Property values in May were 1.9 percent higher than a year earlier, experiencing slower growth than the 2.2% annual increase in April.

Russell Galley, managing director, Halifax, said: “The month-on-month figures are more volatile than the quarterly or annual measures.

“In the three months to May, house prices were 0.2 percent higher than the previous quarter and on an annual basis they are 1.9% higher.

“Both of these measures have fallen since reaching a recent peak, in the final months of last year.

“These latest price changes reflect a relatively subdued UK housing market.”

Howard Archer, chief economic adviser at EY ITEM Club, said: “The housing market is struggling to gain traction amid challenging conditions and we suspect that any meaningful upturn will remain elusive over the coming months.

“We expect house price gains over 2018 will be limited to a modest 2 percent. At this stage, we expect prices to rise no more than 3 percent in 2019.”

Sarah Beeny, founder of estate agent Tepilo.com said: “A slowdown in growth levels is what the market needs to ensure it remains robust, as continuous high rises are unsustainable and make it difficult for many first-time buyers to get on the ladder.

“The whole market depends on first time buyers entering, so this more modest, sustainable level of growth is good news.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said house prices “remain supported by a healthy labour market, which is ensuring that few people are being forced to sell their homes in a weak market”.

Mr Tombs said he expects house prices to “flatline” in the second half of this year.

Mike Scott, the chief property analyst at estate agent Yopa, said: “Both supply and demand are subdued compared with last year, and we may see a lower total number of house sales in 2018 than in recent years.”

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International Commercial InvestmentProperty prices are still rising

UK economic growth revised higher in first quarter

by International Commercial Investment on June 29, 2018

Source: The Guardian

The UK economy grew at a faster rate than initially thought in the first three months of 2018, raising hopes for a pick-up in growth after the sluggish start to the year.

The Office for National Statistics unexpectedly revised higher its third and final estimate for UK growth in the first quarter to 0.2%, after two earlier estimates of 0.1%.

Government statisticians said fresh figures from the construction industry and improvements for measuring the sector had nudged up the growth rate.

The pound rallied against the dollar on foreign exchanges on Friday, as City traders bet that the revision increased the likelihood that the Bank of England would raise interest rates from as early as August.

Threadneedle Street has consistently argued in recent months that the UK economy is stronger than official figures might suggest, which could support a rate rise to 0.75% from 0.5%.

Despite the better news for the economy, as Theresa May met her European counterparts on Friday in Brussels to discuss Britain’s exit from the EU, the ONS said household consumption remained subdued and business investment fell in the first quarter. Economists said this confirmed the UK economy remained weak in the first three months of the year.

Samuel Tombs , the chief UK economist at the consultancy Pantheon Macroeconomics, said: “Growth [was] revised up, but the details are worse than before.”

Even though there was a revision for the first quarter, officials said the annual rate of expansion for the economy was unchanged at 1.2% – the weakest level recorded since the year to the second quarter of 2012.

The ONS also downgraded the rate of growth for 2017 from 1.8% to 1.7%, meaning the UK was the only country from the G7 group of wealthy nations to record a slowdown last year.

There have been increasingly strident warnings that businesses could relocate jobs and investment to the EU after Brexit, with growing uncertainty over the type of deal ministers want to secure with Brussels. The latest figures showed business investment fell by 0.4% in the first quarter.

Britain’s dominant service sector contributed the most to the economy, with growth of 0.3%, while production output – which includes manufacturing, energy and other utilities – rose by 0.4%, having been revised down from 0.6%.

The construction industry’s output fell by 0.8%, an improvement from the previous estimate for a fall of 2.7%, although the quarter remained the worst for the building trade in more than five years.

After a rise in inflation after the Brexit vote and weak wage growth, families increased their borrowing during the first quarter, as real growth in their disposable incomes fell by 0.5%.

The household savings ratio, which estimates the amount of money families have to save as a proportion of their total disposable income, fell to 4.1% from 4.5% in the fourth quarter.

Torsten Bell, the director of the Resolution Foundation thinktank, said households responded to shrinking pay packets and squeezed incomes by choosing to save less and borrow more. “This makes sense as families cope with higher than expected price rises, but it’s not a sustainable one.”

Britain’s current account deficit, measuring the difference between payments into and out of the country, narrowed by £1.8bn to stand at £17.7bn – or 3.4% of GDP – in the first quarter.

The gap, which illustrates how dependent the UK is on imports, shrank – thanks to falling imports and rising volumes of exports.

John Hawksworth, the chief economist at PwC, said: “Growth could pick up a little further in 2019 as real wages recover, but risks are weighted to the downside given uncertainty around the outcome of the Brexit negotiations and the potential threat to global growth from an escalating US-led trade war.”

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International Commercial InvestmentUK economic growth revised higher in first quarter

BOE Gets Big Signal U.K. Economy Is Starting to Bounce Back

by International Commercial Investment on June 5, 2018

Source: Bloomberg

The biggest part of the U.K. economy grew more than forecast in May, backing up the Bank of England’s view that a recent slump was temporary and keeping it on track for an interest-rate increase in the summer.

A measure of services jumped to a three-month high of 54 from 52.8, beating the reading of 53 predicted in a Bloomberg survey. Taken with manufacturing and construction, it suggests the economy is on course for growth of 0.3 to 0.4 percent this quarter, said IHS Markit, which publishes the indexes. Expansion slowed to just 0.1 percent in the first three months of the year.

The pound jumped after the report and was up 0.5 percent to $1.3379 as of 10:48 a.m. London time.

For the BOE, the latest Purchasing Managers Indexes support its view that the near-stagnation at the start of the year was largely down to bad weather. Retail sales rebounded in April and separate figures Tuesday point to another strong month in May, when Britons basked in a heat wave.

While the BOE held off raising interest rates in May as a precaution, it’s expected to act later this year. Policy maker Silvana Tenreyro said on Monday that the weakness was short-lived and the U.K. will need a gradual tightening over the next three years.

Investors are currently pricing about 44 percent chance of a U.K. rate increase in August. Tenreyro said is that while there’s little cost to waiting one quarter to more fully assess the economy, delaying too long is a risk. In her view, “flexibility is limited.”

“The Bank of England appears to have a preference to raise interest rates sooner rather than later based on a belief that wage growth will respond to a tight labor market, keeping inflation higher for longer,” said James Knightley, an economist at ING in London. “These data releases keep the prospect of an August rate hike firmly on the table.”

However, Knightley added that the BOE won’t follow quickly with additional tightening, given the ongoing risks. That was echoed in the Markit statement, which noted that Brexit is holding back investment and new orders are growing at the weakest pace since 2016. Confidence across the services sector dropped for the third time in four months.

“Disappointing inflows of new work suggest that growth could wane in coming months,” said Chris Williamson, Markit’s chief business economist. He agrees that a BOE move will probably come in August, but it isn’t set in stone.

“With forward-looking indicators suggesting that the economy could relapse, a rate rise is by no means assure,” he said.

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International Commercial InvestmentBOE Gets Big Signal U.K. Economy Is Starting to Bounce Back