Connect with us

Published

on

The UK economy has flatlined but has avoided a recession this year as the chancellor warned high inflation remained the main obstacle to growth.

Fresh data from the Office for National Statistics shows that gross domestic product (GDP) – which measures the value of goods and services produced – rose by 0.2% over the month, amid a boost from the film production, health and education industries although growth in August was revised down to 0.1% from 0.2%.

While the figures indicate the economy failed to grow at all in the third quarter, it does mean the UK dodges a recession this year which is defined as two consecutive quarters of negative GDP.

Analysts had predicted a 0.2% fall for the latest period.

Economists said the manufacturing and construction sectors particularly helped to support growth over the end of the quarter.

Sclerotic growth gives chancellor little room for manoeuvre


Paul Kelso - Health correspondent

Paul Kelso

Business correspondent

@pkelso

Zero growth in the third quarter of 2023 was marginally better than expectations of a small contraction, but confirmed the UK’s flatlining post-COVID economic trajectory.

There may be some relief that the prospect of recession, predicted by the Bank of England among others earlier in the year, has receded, but there is precious little to celebrate beneath the headline figure.

The torpor in the three months to September affected all significant sectors more or less equally.

Services activity fell by 0.1% cancelling out a 0.1% increase in construction, while production was flat.

Meanwhile, spending by companies, individuals and the public sector, was depressed, with business investment, household and government spending all down.

This may further evidence that the interest rate increases pushed through by the Bank of England to tackle inflation are biting, making everyone more cautious, but it also underlines the challenge to the chancellor two weeks out from his autumn statement.

Jeremy Hunt has made clear that a growing economy is the key to any significant move, whether to stimulate business growth or consumer spending via tax cuts, which he has consistently ruled out to the dismay of Conservative backbenchers.

Sclerotic growth gives him very little room for manoeuvre, or much chance to change the course of an economy that appears to be adrift, waiting for the weather to change.

ONS director of economic statistics Darren Morgan said: “The economy is estimated to have shown no growth in the third quarter.

“Services dropped a little with falls in health, management consultancy and commercial property rentals.

More on Cost Of Living

“These were partially offset by growth in engineering, car sales and machinery leasing.

“In the month of September the economy grew slightly, with increases in film production, health and education.

“This growth was partially offset by falls in retail and computer programming.”

Please use Chrome browser for a more accessible video player

‘Inflation is still too high’

The Bank of England said last week it expected zero growth in the economy next year but kept interest rates at a 15-year high as it continued to battle an inflation rate more than three times its 2% target.

The central bank had forecast a flat reading for growth in the third quarter.

Read more on Sky News:
Concern about the ‘intensity of competition’ among fuel providers
Signs landlords struggling most as number of households in mortgage arrears leaps by 18%

Responding to the latest ONS data ahead of the autumn budget statement on 22 November, Jeremy Hunt said: “High inflation is the single greatest barrier to economic growth.

“The best way to sustainably grow our economy right now is stick to our plan and knock inflation on its head.

“The autumn statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs.”

Labour’s shadow chancellor Rachel Reeves said: “These figures are further evidence that the economy is not working under the Conservatives and working people are worse off.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The economy narrowly avoided contracting in Q3, and we continue to think that it can maintain this resilient performance in Q4.

“We continue to think that the chances of a recession look low.”

Continue Reading

Business

FTSE 100 closes at record high

Published

on

By

FTSE 100 closes at record high

The UK’s benchmark stock index has reached another record high.

The FTSE 100 index of most valuable companies on the London Stock Exchange closed at 8,505.69, breaking the record set last May.

It had already broken its intraday high at 8532.58 on Friday afternoon, meaning it reached a high not seen before during trading hours.

Money blog: Major boost for mortgage holders

The weakened pound has boosted many of the 100 companies forming the top-flight index.

Why is this happening?

Most are not based in the UK, so a less valuable pound means their sterling-priced shares are cheaper to buy for people using other currencies, typically US dollars.

This makes the shares better value, prompting more to be bought. This greater demand has brought up the prices and the FTSE 100.

The pound has been hovering below $1.22 for much of Friday. It’s steadily fallen from being worth $1.34 in late September.

Also spurring the new record are market expectations for more interest rate cuts in 2025, something which would make borrowing cheaper and likely kickstart spending.

What is the FTSE 100?

The index is made up of many mining and international oil and gas companies, as well as household name UK banks and supermarkets.

Familiar to a UK audience are lenders such as Barclays, Natwest, HSBC and Lloyds and supermarket chains Tesco, Marks & Spencer and Sainsbury’s.

Other well-known names include Rolls-Royce, Unilever, easyJet, BT Group and Next.

Read more:
Russia sanctions: Fears over UK enforcement by HMRC
Trump tariff threat prompts IMF warning ahead of inauguration

FTSE stands for Financial Times Stock Exchange.

If a company’s share price drops significantly it can slip outside of the FTSE 100 and into the larger and more UK-based FTSE 250 index.

The inverse works for the FTSE 250 companies, the 101st to 250th most valuable firms on the London Stock Exchange. If their share price rises significantly they could move into the FTSE 100.

A good close for markets

It’s a good end of the week for markets, entirely reversing the rise in borrowing costs that plagued Chancellor Rachel Reeves for the past ten days.

Fears of long-lasting high borrowing costs drove speculation she would have to cut spending to meet self-imposed fiscal rules to balance the budget and bring down debt by 2030.

Please use Chrome browser for a more accessible video player

They Treasury tries to calm market nerves late last week

Long-term government borrowing had reached a high not seen since 1998 while the benchmark 10-year cost of government borrowing, as measured by 10-year gilt yields, was at levels last seen around the 2008 financial crisis.

The gilt yield is effectively the interest rate investors demand to lend money to the UK government.

Only the pound has yet to recover the losses incurred during the market turbulence. Without that dropped price, however, the FTSE 100 record may not have happened.

Also acting to reduce sterling value is the chance of more interest rates. Currencies tend to weaken when interest rates are cut.

Continue Reading

Business

Trump tariff threat prompts IMF warning ahead of inauguration

Published

on

By

Trump tariff threat prompts IMF warning ahead of inauguration

The International Monetary Fund (IMF) has warned against the prospects of a renewed US-led trade war, just days before Donald Trump prepares to begin his second term in the White House.

The world’s lender of last resort used the latest update to its World Economic Outlook (WEO) to lay out a series of consequences for the global outlook in the event Mr Trump carries out his threat to impose tariffs on all imports into the United States.

Canada, Mexico, and China have been singled out for steeper tariffs that could be announced within hours of Monday’s inauguration.

Mr Trump has been clear he plans to pick up where he left off in 2021 by taxing goods coming into the country, making them more expensive, in a bid to protect US industry and jobs.

He has denied reports that a plan for universal tariffs is set to be watered down, with bond markets recently reflecting higher domestic inflation risks this year as a result.

While not calling out Mr Trump explicitly, the key passage in the IMF’s report nevertheless cautioned: “An intensification of protectionist policies… in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains.

Follow our Money blog: Major boost for mortgage holders

Please use Chrome browser for a more accessible video player

Trump’s threat of tariffs explained

“Growth could suffer in both the near and medium term, but at varying degrees across economies.”

In Europe, the EU has reason to be particularly worried about the prospect of tariffs, as the bulk of its trade with the US is in goods.

The majority of the UK’s exports are in services rather than physical products.

The IMF’s report also suggested that the US would likely suffer the least in the event that a new wave of tariffs was enacted due to underlying strengths in the world’s largest economy.

Read more: What Trump’s tariffs could mean for rest of the world

The WEO contained a small upgrade to the UK growth forecast for 2025.

It saw output growth of 1.6% this year – an increase on the 1.5% figure it predicted in October.

Please use Chrome browser for a more accessible video player

What has Trump done since winning?

Economists see public sector investment by the Labour government providing a boost to growth but a more uncertain path for contributions from the private sector given the budget’s £25bn tax raid on businesses.

Business lobby groups have widely warned of a hit to investment, pay and jobs from April as a result, while major employers, such as retailers, have been most explicit on raising prices to recover some of the hit.

Chancellor Rachel Reeves said of the IMF’s update: “The UK is forecast to be the fastest growing major European economy over the next two years and the only G7 economy, apart from the US, to have its growth forecast upgraded for this year.

“I will go further and faster in my mission for growth through intelligent investment and relentless reform, and deliver on our promise to improve living standards in every part of the UK through the Plan for Change.”

Continue Reading

Business

Run of bad economic data brings end to market turbulence and interest rate benefits as three Bank cuts expected for 2025

Published

on

By

Run of bad economic data brings end to market turbulence and interest rate benefits as three Bank cuts expected for 2025

A week of news showing the UK economy is slowing has ironically yielded a positive for mortgage holders and the broader economy itself – borrowing is now expected to become cheaper faster this year.

Traders are now pricing in three interest rate cuts in 2025, according to data from the London Stock Exchange Group.

Earlier this week just two cuts were anticipated. But this changed with the release of new official statistics on contracting retail sales in the crucial Christmas trading month of December.

It firmed up the picture of a slowing economy as shrunken retail sales raise the risk of a small GDP fall during the quarter.

Money blog: Surprise as FTSE 100 soars to new record high

That would mean six months of no economic growth in the second half of 2024, a period that coincides with the tenure of the Labour government, despite its number one priority being economic growth.

Clearer signs of a slackening economy mean an expectation the Bank of England will bring the borrowing cost down by reducing interest rates by 0.25 percentage points at three of their eight meetings in 2025.

More on Interest Rates

Please use Chrome browser for a more accessible video player

How pints helped bring down inflation

If expectations prove correct by the end of the year the interest rate will be 4%, down from the current 4.75%. Those cuts are forecast to come at the June and September meetings of the Bank’s interest rate-setting Monetary Policy Committee (MPC).

The benefits, however, will not take a year to kick in. Interest rate expectations can filter down to mortgage products on offer.

Despite the Bank of England bringing down the interest rate in November to below 5% the typical mortgage rate on offer for a two-year deal has been around 5.5% since December while the five-year hovered at about 5.3%, according to financial information company Moneyfacts.

The market has come more in line with statements from one of the Bank’s rate-setting MPC members. Professor Alan Taylor on Wednesday made the case for four cuts in 2025.

His comments came after news of lower-than-expected inflation but before GDP data – the standard measure of an economy’s value and everything it produces – came in below forecasts after two months of contraction.

News of more cuts has boosted markets.

The cost of government borrowing came down, ending a bad run for Chancellor Rachel Reeves and the government.

State borrowing costs had risen to decade-long highs putting their handling of the economy under the microscope.

The prospect of more interest rate cuts also contributed to the benchmark UK stock index the FTSE 100 reaching a new intraday high, meaning a level never before seen during trading hours. A depressed pound below $1.22, also contributed to this rise.

Similarly, falling US government borrowing has reduced UK borrowing costs after US inflation figures came in as anticipated.

Continue Reading

Trending