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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

Stock market boom helps keep economy growing

by International Commercial Investment on March 20, 2017

Source: The Telegraph

Surging share prices are making households wealthier, boosting confidence and offsetting some of the squeeze from rising inflation and sluggish wage growth.

Britons’ net financial wealth has jumped by 12.5pc in the past year according to economists at the EY Item Club – rising four times more quickly than wages.

This “should provide some prop to spending this year” and so keep the economy growing, they hope.

However, this only benefits the relatively well off who own shares and other financial assets. As a result rising inflation will hit lower-paid households the hardest.

Low earners also spend more of their income than high earners, meaning they receive a second bigger blow from rising prices.

Prices are expected to increase by 2.8pc this year, almost eclipsing pay growth and leaving household incomes rising by just 0.1pc in real terms over 2017, the Item Club believes, down from 1.8pc in 2016.

That inflation is driven in large part by the fall in the pound which is pushing up the cost of imported goods.

“Higher inflation will be the key culprit in the sharp slowdown in consumer spending growth this year, cutting off what has been an all-too-brief revival in real pay growth and continuing the dismal picture for real earnings seen since the financial crisis,” said Martin Beck, senior economic advisor to the EY Item Club.

“There should be some improvement in 2018, as inflation begins to cool, but even then we anticipate real wage growth of just 0.7pc. It is likely to be 2019 before workers begin to enjoy more ‘normal’ rates of real wage growth again.”

Inflation rose even more quickly back in 2011 with price rises peaking at more than 5pc, as high oil prices and VAT hikes pushed up living costs.

Economists do not expect this period of inflation to be that severe, and say consumer spending is “not heading for bust this year, [but] certainly faces the ingredients for a sharp slowdown”.

Other parts of the economy are more upbeat.

Executives at the world’s biggest financial services firms believe “the UK economy is on course for a resilient 2017, and could outperform other developed nations” according to a survey by Lloyds Bank.

Three-quarters of those surveyed said the UK’s economic growth will match or exceed the average in the G7 this year.

“Financial services firms are an important barometer of the UK economy – and despite uncertainties such as the future of our relationship with the EU and new regulatory pressures, they are confident that the outlook for the UK over the coming year is better than had been expected,” said Edward Thurman from Lloyds’ commercial banking arm.

Despite their confidence over the economic outlook those financiers still have some worries over the UK’s future relationship with the EU, however.

Almost two-thirds said they are concerned about the potential loss of the system of passporting which allows finance firms to do business across EU borders, while 50pc are concerned about barriers to trade and 35pc about the future of regulatory equivalence between the UK and the EU.

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International Commercial InvestmentStock market boom helps keep economy growing