Key event
We also have encouraging signs that inflationary pressures are easing in America.
The Producer Price Index for final demand declined by 0.5% in March, showing that US goods and services makers cut their prices last month.
For first time since April 2020, both headline and core PPI fell m/m … former -0.5% and latter -0.1% … both largest decreases since April 2020 pic.twitter.com/M8jmRDoR8J
— Liz Ann Sonders (@LizAnnSonders) April 13, 2023
Closing post
Time to wrap up… here are today’s main stories:
UK is worst performer in G7 for workforce participation since Covid
More economic gloom: Britain has emerged as the worst-performing country in the G7 for workforce participation since the Covid pandemic.
The UK has seen an exodus of half a million people at a time of record levels of long-term sickness, our economics correspondent Richard Partington writes.
Figures from the Organisation for Economic Co-operation and Development (OECD) showed the UK’s labour force participation – the percentage of working-age adults either in work or job hunting – was 78.6% in the final three months of 2022, down from 79.5% in the same period at the end of 2019.
Trailing almost every other advanced economy in the world, Britain ranked bottom of the G7 for workforce participation. Only seven other countries in the 38-member OECD also had labour market participation below their pre-Covid levels.
Over in Washington DC, our economics editor Larry Elliott reports that countries in the wealthy west are starting to wake up to the risk of a looming debt crisis in poorer parts of the world.
But they’re not fully alert to the crisis, experts warn:
This week’s gathering of the International Monetary Fund and World Bank in Washington has been marked by a discussion about what to do about countries that are in debt distress or on the brink of it.
The good news is that debt has climbed back up the policy agenda and is seen as a problem that needs sorting. The managing director of the IMF, Kristalina Georgieva, has been particularly keen to stress the need to assist struggling countries while there is still time.
“I would like to make a double plea on their behalf: help them handle the burden of debt, which was made so much harder by the shocks of the past years; and secondly, help ensure that the IMF continues to be in a position to support them in the years ahead,” she said in a speech before this week’s gathering.
The bad news is that Georgieva’s plea is yet to be heeded. Wealthy countries are still primarily concerned with their own problems. The geopolitical rivalry between the US and China is also not helping. Creditor countries may be waking up to the idea that there is a problem with debt but they are a long way from finding a solution. Talk is not being matched by action.
“Nothing will happen this week,” says Matthew Martin, the director of the campaign group Debt Relief International. “But while nothing happens the crisis will get worse and worse.”
More here:
Huw Pill: Pay growth has eased
Pay growth has eased, across both the whole economy and the private sector, says Huw Pill.
This may be a sign that wage rises will ease this year as inflation falls, he suggests, saying:
Moreover, high frequency indicators of momentum in wage developments appear to be easing.
Three-month-on-three-month annualised private sector regular pay growth is 5.5%, its lowest level since December 21, and is now below the annualised rate.
BoE chief economist Huw Pill points out that the UK’s morgage market has cooled:
The continued weakness of net mortgage lending to households in February, which declined for the sixth consecutive months, consistent with weaker demand and tighter lending conditions.
Huw Pill then warns that ‘developments’ in US and European banking markets have created financial tensions in recent weeks, a nod to the collapse of Silicon Valley Bank and the rescue of Credit Suisse.
The impact on UK financial conditions and credit markets “so far appears to be contained”, he says, adding that the Bank of England will be vigilant.
[The Monetary Policy Committee] remains vigilant to signs of tightening financial conditions and will be prepared to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation.
BoE's Huw Pill: UK facing uncertain growth expectations
The Bank of England’s chief economist has warned that the economy probably contracted slightly in the first quarter of this year.
Huw Pill is giving a speech now to the Market News International Connect Video Conference.
Pill begins by citing this morning’s growth figures, showing the economy flatlined in February, saying:
Activity in the UK remains subdued, as the level of GDP was flat over the month in February.
Bank staff continue to expect GDP to decline by 0.1% in 2023 Q1, as had been projected in the February MPR [monetary policy report].
Pill points out that the latest surveys of purchasing managers across the UK suggest activity is improving:
PMIs have picked up notably of late, suggesting there is scope for modest growth in output and employment.
Composite output expectations PMI continued to strengthen (and was revised up from the flash estimate), pointing to much stronger prospective growth than any of the other business survey indicators that we track.
But Pill warns that there are “mixed signals from other surveys, suggesting the collective steer from business surveys continues to point towards uncertain growth expectations”.
Deutsche Bank have kindly fired over a chart, showing how businesses have been hit by industrial action since last autumn.
They say:
February GDP flatlined, coming in slightly below expectations. The construction sector was the only main sector registering an increase in output, with industrial production and the all-important services sector both shrinking.
Why was services weak? Amongst other factors, one main reason was continued strike action. Transport, education and public administration services all saw employees walk out, with the three sectors dragging monthly GDP growth down by 20bps.
Indeed, as our Chart of the Week highlights, over 10% of businesses have been affected by industrial action since Sep-22, according to the latest BICS data.
The increase in defaults in both secured and unsecured loans underlines the daily struggle for many UK households to keep on top of rising prices, explains Myron Jobson, senior personal finance analyst at interactive investor:
“The past couple of years have been painfully difficult for Britons, with rising prices robbing us all of purchasing power. The sheer force of the cost-of-living storm has shattered finely crafted budgets in its wake. While the cost of living is forecast to fall significantly by the end of the year, significant pressure remains on the ability of households to meet their debts.
“With the cost of housing, food, broadband and other household utilities on the up, and with energy bills remaining elevated, people are already struggling to keep their financial plates spinning. Adding interest and repayments to the ever-growing mountain of monthly costs could prove to be one plate too many for a large number of Britons. The banks predict that more and more people who have relied on the plastic and other forms of debt to make ends meet amid the cost-of-living crisis will reach financial breaking point in the coming months.
Jobson adds that it is worth consulting a debt advice charity such as StepChange or Turn2Us if you are struggling with debt, as they will take you through all of your options.
Lenders report increase in households defaulting on loans
UK lenders have recorded a rise in households defaulting on loans over the past three months, according to new data from the Bank of England.
The BoE’s Credit Conditions Survey found that default rates on secured loans to households, such as mortgages, increased in the last quarter, and were expected to increase further in Q2.
It’s the same picture for unsecured lending, with lenders reporting a rise in defaults on both credit cards and other unsecured loans in December-February, and a further increase expected in March-May.
More small companies are defaulting on their borrowing too, the BoE says:
Lenders reported that default rates on loans to both small and medium-sized corporates increased in Q1 and was expected to increase further in Q2.
Default rates on loans to large businesses was unchanged in Q1 and was expected to remain unchanged in Q2.
The Credit Conditions report also foud that lenders expected to cut the availability of secured credit over the next three months, suggesting it could be harder to find a mortgage.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:
‘’Watchful eyes are on any sign of credit conditions tightening as a result of the banking crisis which erupted in March, and the environment in the run up to the turbulence showed that lenders were already becoming more risk averse. The interest free loan periods available for credit cards decreased in the first quarter of the year and are expected to narrow further. It’s little surprise that lenders were tightening up, given that default rates for unsecured lending had already increased during the first few months of the year and were expected to lift again towards the summer. Lenders were already expecting that there will be less secured credit available for home loans during the Spring months. A squeeze in lending to big firms wasn’t expected in the second quarter, although this may be because demand for credit from larger corporates had decreased at the start of the year.
Due to the lag effect of the banking crisis, it’s too early to establish just how much the picture will have changed, but central banks are bracing for a further tightening of credit conditions. This was clear from the latest Fed minutes and from the most recent comments from the governor of the Bank of England. The repercussions from the collapse of Silicon Valley Bank are expected to tip the US economy into a mild recession, and the Bank of England is also concerned that the rapid nature of recent bank runs may mean lenders will have to increase their capital buffers even further to protect themselves, in addition to the cushions they have built up since the financial crisis. Banks have benefited from high interest rates which have boosted their net income margins, but as stormier weather approaches and the need to attract in more deposits rises, those net income margins face a squeeze.’’
The truth will out...the average discount on INITIAL ASKING PRICES in Central London in Q1 2023 based on @LonresComLtd data. pic.twitter.com/exQNhQJd9P
— Emma Fildes (@emmafildes) April 13, 2023
Updated
Opec, the group of oil producers, has left its forecast for global oil-demand growth this year unchanged, despite cutting production at the start of April.
In its latest monthly oil market report, Opec says its estimate for world oil demand growth estimate for 2023 is unchanged from the last month’s assessment at 2.3 million barrels per day.
The group says:
There are minor downward adjustments reflecting the latest developments in the OECD region, primarily in OECD Americas and OECD Europe. However, the stronger-than-expected demand seen in non-OECD in January and February necessitated some upward revisions.
Oil demand in the OECD is forecast to increase by 0.1 mb/d in 2023, while the non-OECD is forecast to grow by 2.2 mb/d.
Opec also points out that the global economy faces challenges including high inflation, higher interest rates particularly in the Euro-zone and the US, and high debt levels in many regions.
Opec AGAIN leaves its forecasts broadly unchanged in the increasingly cut'n'paste MOMR.
— Ben Winkley 🛢️ (@Ben_Winkley) April 13, 2023
Slight adjustments to when the demand will be makes this year look increasingly front-loaded.
At the start of last week, Saudi Arabia and other Opec+ members surprised the markets by announcing voluntary cuts to their oil production of about 1.15m barrels a day.
They said the move would support market stability; it sent oil soaring. Brent crude is trading around $87 per barrel today, up from below $80 at the end of March.
Hundreds of cleaners working on trains across the country will launch a 48-hour strike on Friday in a dispute over pay.
Members of the Rail, Maritime and Transport union (RMT) at a number of private contractors will walk out as part of a long-running campaign for a wage rate of £15 an hour and other benefits.
The train companies that will be affected are Avanti West Coast, GWR, Northern, GTR and South East Trains, the RMT says.
RMT general secretary Mick Lynch said:
“Contracting out on the railways is one of the most perverse and exploitative practices in the industry.
“It is leading to our members in the cleaning grades barely scraping by on poverty wages and appalling terms and conditions.
“RMT is calling time on these multimillion-pound contractors. They now need to pay up and use their generous dividends and profits and invest in their workforce.
“Ultimately the train companies and the Government must step in to end outsourcing and bring train cleaners in house, paying them properly and giving them decent holidays and sick pay.
“Our members are fully prepared to take whatever industrial action is required to get justice in the workplace and a decent life for them and their families.”
Eurozone February IP m/m +1.5% (est +1.0% last revised to +1.0% from +0.7%)
— Mario Cavaggioni (@CavaggioniMario) April 13, 2023
Eurozone economy accelerated during Q1, however momentum was more fragmented... pic.twitter.com/I0jOFZMcYS
Eurozone industrial production rises at fastest pace in six months
Over in the eurozone, industrial output has roared back.
Factory output in the eurozone rose at its fastest pace for six months in February, increasing by a faster-than-expected 1.5% during the month.
That beats forecast of a 1% rise, and suggests Europe’s economy has started 2023 more strongly than expected.
Bert Colijn, ING’s senior eurozone economist, says:
Today’s numbers suggest that fading supply chain problems have helped industrial output improve recently. Expect production to contribute positively to first-quarter GDP.
The improvement in production in February was broad-based but led by Germany which saw production increase by 2.1%. Out of the larger economies, only Italy saw a small decline of -0.2%. All production categories also experienced higher output.
Euro area #IndustrialProduction +1.5% in February 2023 over January, +2.0% over February 2022 https://t.co/MrqwCdnRgi pic.twitter.com/5EW42q0bpr
— EU_Eurostat (@EU_Eurostat) April 13, 2023
"Industry came roaring back in Q1, will it last?" @MelanieDebono on Industrial Production, Eurozone, February 2023 #PantheonMacro
— Pantheon Macro (@PantheonMacro) April 13, 2023
Bank of England fines former TSB executive over 2018 IT failure
TSB Bank’s former chief information officer Carlos Abarca has been hit with an £81,620 fine over the bank’s botched IT migration five years ago.
The Bank of England said on Thursday it had fined Abarca for failing to adequately manage the migration to new IT systems in April 2018 which led to disruption for millions of customers.
Abarca was penalised under the UK’s Senior Manager Conduct Rules, which were brought in after the 2008 financial crisis to hold top bankers more accountable.
Sam Woods, the BoE deputy governor in charge of the central bank’s supervisory arm, the Prudential Regulation Authority, says:
“The PRA has fined Mr Abarca because his management of a key outsourcing relationship fell below the standard we expect.”
TSB’s migration of its corporate and customer services to a new IT platform in April 2018 led to immediate technical failures, and disruption to banking services, including branch, telephone, online and mobile banking.
It was one of the worst IT meltdowns in many years.
Small businesses were unable to pay salaries or manage transactions, while some account holders found all their direct debits had disappeared and others reported that their cards were declined when shopping.
All of TSB’s branches and a significant proportion of its 5.2 million customers were affected by the initial issues, which weren’t completely resolved intil December 2018, the BoE says.
Today’s ruling says that Abarca did not:
ensure that the third party’s ability and capacity were adequately reassessed on an ongoing basis;
ensure that TSB obtained sufficient assurance from the third party in relation to its readiness to operate the new IT platform; and
give sufficient consideration to whether further investigation was required before giving assurance to the TSB Board as to the third party’s readiness for migration.
The PRA said Abarca agreed to resolve the matter, and therefore qualified for a 30% reduction in the overall fine, which would otherwise have been £116,000.
Last December, TSB was fined £48.65m by City regulators over the botched migration, and has paid £32.7m in redress to customers who suffered detriment.
Updated
Moody's: strike action will 'keep lid' on Q1 GDP
Industrial action also subdued the economy in March, points out Moody’s Analytics economist Barbara Teixeira Araujo.
This means that the economy probably flatlined in the first quarter of this year, Teixeira Araujo predicts. But, Moody’s does forecast the economy will grow this year.
She writes:
“The U.K. economy held flat in February, with the sectoral breakdown details showing that it was actually the construction sector that saved the day, as a sharp 2.4% m/m rebound in building activities offset falls in each production and services output.
However, were it not for February’s strikes—especially within civil service and amongst teachers and university lectures—services sector output, and by extension GDP, would actually have risen.
Looking ahead, broad-based industrial action also took place in March, which should keep a lid on first quarter’s GDP. Consequently, we are expecting activity to basically flatline in the January-March quarter.
And the economy will only slowly recover thereafter, as still-high inflation and extremely-tight financial conditions are expect to keep on holding back growth. While we expect that an outright recession will be avoided in 2023, growth should clock in at only 0.4%, down from 4.1% in 2022.”
Updated
Investec: UK economy needs a restart as growth likely to keep flatlining
The combined forces of industrial action, aggressive monetary tightening and stretched household budgets mean the UK economy is struggling to find any real momentum, says Investec economist Ellie Henderson.
She says the UK economy needs a restart as growth is likely to continue to flatline, after stalling in February.
The impact of the headwinds on the economy were made clear in the report, particularly that of industrial action, Henderson explains:
Services output was the major drag on economic activity in February, declining by 0.1% on the month and within this it was sectors most affected by strike action that contributed most significantly to the contraction.
For example, education output declined by 1.7% on the month, following teachers walking out over pay during February, as did public administration output, which fell by 1.1%, again a sector plagued by industrial action. Even a 0.4% rise in consumer-facing services, which includes retail trade, – a sector that we suspected would perform well as guided by a buoyant retail sales report in February – was not large enough to offset the declines elsewhere.
Henderson cautions that industrial output was not particularly inspiring either, contracting by 0.2% on the month, while builders were busier:
It was construction output that saved the day, with the 2.4% bounce on the month preventing an outright contraction in GDP in February. This was helped by the warmer weather but should also be considered in the context of a 1.7% fall in January.
Full story: UK economy flatlined in February amid impact of strikes
Britain’s economy recorded growth of 0.0% in February as a wave of public sector strikes weighed on activity, offsetting a recovery in consumer spending despite the cost of living crisis, our economics correspondent Richard Partington writes.
The latest figures from the Office for National Statistics (ONS) show the economy ground to a halt in February, falling below City expectations for a 0.1% month-on-month rise in gross domestic product (GDP), the total value added by the production of goods and services across the economy.
It follows growth of 0.4% in January, as revisions to earlier estimates pushed the economy back above pre-pandemic levels. However, the UK’s recovery to pre-Covid levels remains slower than that of any other G7 economy.
The ONS said construction grew strongly after a poor start to the year with increased repair work taking place, alongside a boost from retail as many shops had a strong month for sales.
However, it said this had been offset by civil service and teachers’ strikes, hitting activity in the public sector, while unseasonably mild weather led to a fall in the use of electricity and gas. Manufacturing showed zero growth, while the UK’s dominant services sector fell by 0.1%, down from a revised growth rate of 0.7% a month earlier.
The figures come hours after Jeremy Hunt insisted the UK would do “significantly better” than the International Monetary Fund’s forecast on Tuesday that the economy was expected to shrink by 0.3% this year.
Speaking to Bloomberg News on the sidelines of the fund’s spring meetings in Washington on Wednesday night, he said:
“We will do better than that.”
Updated
FTSE 100 dips
The London stock market has opened quietly this morning, as traders digest today’s UK GDP report.
The FTSE 100 index has dipped by 3 points to 7821, having closed at a one-month high yesterday.
Housebuilders Taylor Wimpey (+2.2%) and Barratt (+2.2%) are leading the risers, after HSBC lifted its price targets on their stock, followed by Tesco (+2%) despite its drop in profits last year.
Victoria Scholar, head of investment at interactive investor, explains:
Investors are weighing up an improving picture for US inflation with the latest data falling to 5%, a two-year low versus fears of a recession stateside after minutes from the Fed’s latest meeting indicated that US central bank policymakers are concerned about the negative economic fallout from the recent turmoil in the banking sector.
US weekly jobless claims and producer price inflation data are in focus today as well as Wall Street earnings which kick off tomorrow with some of the biggest US banks due to report.”
What’s moving markets on Thursday? pic.twitter.com/orsH257lSL
— Victoria Scholar (@VictoriaS_ii) April 13, 2023
Tesco profits halve amid ‘incredibly tough year for customers’
Profits at Tesco halved last year to £753m in what the grocer called an “incredibly tough year for customers” as it battled “significant operating cost inflation” and wrote down the value of some properties.
The UK’s biggest retailer said sales rose 7.2% to £65.7bn in the year to 25 February, including a 3.3% increase at its UK supermarkets, but it had sold fewer items as shoppers chose carefully, to manage budgets under pressure from price rises.
Sales of food in the UK rose 4.6% in the year, led by the group’s own-label ranges, with sales of its premium Finest range up nearly 7% and its cheapest “Exclusively at Tesco” range up 6%.
However, the retailer said the volume of items sold had fallen, partly as its customers adjusted behaviour amid easing Covid restrictions, buying less to eat at home because they were visiting restaurants and cafes more often.
Sales of homewares and clothing also fell in the UK after strong lockdown-linked sales in the first part of the previous year. Online sales were down 5.4% as shoppers returned to stores as the pandemic eased. However, Tesco said its Whoosh fast-track grocery service was proving popular and now operated from 1,000 stores, 200 more than previously planned.
Sales in convenience stores and large supermarkets rose, with small shops in central London seeing the fastest growth – at 9.4% – reflecting the return to office-working in the capital.
Profits were hit by a £982m write-down on the value of properties and the £138m cost of restructuring, which included hundreds of job cuts when the retailer shut down its fresh food counters in stores.
Ken Murphy, the chief executive of Tesco, which owns the Booker grocery wholesaler and runs stores in eastern Europe and Ireland as well as the UK, said:
“It’s been an incredibly tough year for many of our customers, and we have been determined to do everything we can to help.
LVMH shares hit record as Chinese demand rebounds
Over in Paris, shares in LVMH, the world’s largest luxury company, have hit a record hihh after it smashed analysts’ expectations thanks to a rebound in demand in China.
Last night LVMH, which owns the Louis Vuitton and Dior fashion houses, as well as Hennessy cognac and U.S. jeweler Tiffany, reported a 17% rise in sales to €21.04bn for the first three months of this year.
Demand in China rebounded sharply after COVID-19 lockdowns.
LVMH said it had enjoyed “an excellent start to the year”, within an “uncertain” geopolitical and economic environment.
It said:
Europe and Japan, which enjoyed strong growth momentum, benefited from robust demand from local customers and international travelers; the United States, a market which continues to grow, had a steady performance.
Asia experienced a significant rebound following the lifting of health restrictions.
LVMH’s shares have jumped almost 5% this morning, while other luxury goods makers such as Burberry (+2%) are getting a lift too.
LVMH’s strong performance is an early snapshot of the scale of the Chinese recovery since president Xi JinPing ended the country’s lockdowns.
Peter Garnry, head of equity strategy at Saxo, says:
The European luxury retailer reported a strong surge in Q1 sales, led by fashion and leather goods rising 18%, nearly twice the pace of growth expected from analysts.
The company reported strong growth in sales in Asia after China lifted Covid restrictions.
The pound has nudged up against the US dollar this morning, despite the disappointing UK GDP report for February.
Sterling has gained 0.15% to hit $1.25, the highest in over a week, approaching a 10-month high even though the economy recorded no growth in February.
William Marsters, senior sales trader at investment platform Saxo, says:
“The lack of positive growth will disappoint both the UK Chancellor and the UK PM as the former attempts to defend weak growth projections from the International Monetary Fund, while the latter has promised growth to constituents as one of his five key priorities for 2023.
“Strikes across public services are cited to be the main contributor to the stalled economy in Feb. Pound Sterling moved slightly stronger after the data was published.
The dollar weakened yesterday after US inflation dropped to its lowest in almost two years, boosting hopes that the Federal Reserve might stop raising US interest rates soon.
The UK economy would probably have grown in February, without the strike action by civil servants and teachers, predicts Daniel Mahoney, UK economist at Handelsbanken.
Mahoney says:
Monthly GDP (m-o-m) saw no growth in February by registering at 0%. This was roughly in line with consensus (0.1%). The services sector saw a marginal fall in growth of 0.1% after showing more promising expansion in January of 0.7%.
Teacher strikes in February saw output from the education sector fall by 1.7%, which was the largest contributor to services showing a negative print. Were it not for industrial action, February probably would have posted a marginally positive GDP monthly figure. The disappointing services numbers were offset by more encouraging news elsewhere: for example, the construction sector grew by 2.4% in February, driven by growth in both repair and maintenance and new work.
There’s a danger that the UK economy shrank over the first quarter of this year, Mahoney adds.
But that wouldn’t be a technical recession (two quarters of negative growth in a row), as GDP rose by 0.1% in October-December.
He explains:
The underlying lackluster growth performance of the UK in February could signal that Q1’s quarterly GDP figure comes in marginally negative.
Even if this were to happen, the UK would not be in a technical recession as Q4 2022’s growth figure was not in negative territory. Looking ahead to the rest of 2023, there are reasons to suggest that the growth outlook has somewhat improved in recent months.
One encouraging line in today’s GDP report is that customer-facing firms kept growing in February, despite the cost of living squeeze.
As flagged in our 7am post, output in consumer-facing services grew by 0.4% in February 2023, an acceleration on January’s growth of 0.3%.
As ITV’s Joel Hills points out here, activity has proved more resilient than economists predicted….
Recession avoided but big picture is unheroic.
— Joel Hills (@ITVJoel) April 13, 2023
The UK economy did not grow at all in February and grew by only 0.1% between December and February.
Strike action by teachers + civil servants in Feb had material impact although - perhaps wisely - the @ONS doesn’t hasard an… pic.twitter.com/hZ5fzmS284
…estimate and - perhaps wisely - the chancellor doesn’t refer to it in the statement he has just issued.
— Joel Hills (@ITVJoel) April 13, 2023
“The economic outlook is looking brighter than expected” - is Jeremy Hunt’s assessment.
Quite so, but the UK economy is currently stuck in low-gear. pic.twitter.com/KjlgLKgpNF
…the encouraging news is despite extraordinary squeeze on living standard from inflation and higher interest rates private sector output strengthened in Feb.
— Joel Hills (@ITVJoel) April 13, 2023
“Consumer facing services” (retail, hotels, pubs restaurants, travel, entertainment) grew again.
Six months ago the… pic.twitter.com/jCcyDzBduG
…even the chancellor was expecting the UK to enter a recession, one he said would be “made in Russia”.
— Joel Hills (@ITVJoel) April 13, 2023
Activity has proved more resilient than economists predicted for reasons which aren’t entirely clear.
The broader picture is that the economy has been “pretty much flat since last Spring”, the ONS director of economic statistics Darren Morgan told the Today Programme.
On the upside, though, construction has performed well over the last year, Morgan says, and is well above its pre-pandemic levels.
Construction got back on track quickly in February after a blip in January, although firms do report problems recruiting staff.
NIESR, the economic think tank, says the UK economic outlook for the first quarters of this year “appears to be more resilient than previously though”, despite the flatlining of growth in February.
Today’s @ONS figure suggests that monthly #GDP remained flat in February following growth of 0.4 per cent in January, as a boost in construction was offset by contractions in the services and production sectors. Encouragingly, GDP grew by 0.1 per cent in
— National Institute of Economic and Social Research (@NIESRorg) April 13, 2023
1/3
the three months to February compared to the three months to November. Paired with optimistic #PMI balances and higher-frequency spending data, the UK economic #outlook for the first quarters of this year appears to be more resilient than previously thought, though
— National Institute of Economic and Social Research (@NIESRorg) April 13, 2023
2/3
broadly consistent with the longer-term trend of flatlining economic #growth.
— National Institute of Economic and Social Research (@NIESRorg) April 13, 2023
⚡️Watch this space as our full analysis including an update estimate for 2023 Q2 will be out shortly
⬇️📉📊📈⬇️#UKGDP#UKeconomy#EconTwitter
3/3@PBejaranoCarbo @EconSteveMhttps://t.co/k40Ii3Afea
Fidelity: UK is the weak link among developed economies
Tom Stevenson, investment director for Personal Investing at Fidelity International, also predicts the UK will suffer a year of stagnation in 2023…. before a modest rebound next year.
He fears the UK is the ‘weak link’ among developed economies (as shown by the IMF’s latest forecasts, which Jeremy Hunt has vowed to beat).
Stevenson says:
The British economy failed to grow at all in February, confirming that, while the UK may avoid recession, it is the weak link among the developed world’s economies. The UK’s growth is slower than in other rich countries and its inflation higher. We face a year of stagnation in 2023 before a modest rebound next year.
‘Although January’s growth was revised up slightly to 0.4%, February’s flat line reflects the impact of the UK’s winter of discontent. Strike action took the shine off a modest increase in retail sales, while falling production in the month offset better construction activity.
‘The latest data, and the improving trend elsewhere (such as better than forecast inflation numbers in America) confirm the International Monetary Fund’s gloomy assessment this week that put Britain at the bottom of the league table of leading economies. Only Germany is also expected by the IMF to contract this year.
The UK economy is likely to escape recession, as Jeremy Hunt predicted this morning, says Yael Selfin, Chief Economist at KPMG UK.
But rather than sparking growth, Selfin believes a period of stagnation awaits us, saying:
“A combination of upward revisions in GDP data and an improvement in global economic conditions could help the UK economy avoid a recession this year. While this will provide relief for policymakers, the outlook for growth in the medium-term remains relatively weak by historical standards.
“Economic activity will remain subdued in the near term as households continue to be squeezed by elevated prices and the cumulative impact of past interest rate increases. Although business sentiment continues to improve, bolstered in part by the fall in wholesale energy prices, we expect investment to be constrained this year amidst the tightening in credit conditions and uncertainty about future policy direction.
“UK GDP was flat in February, after growing by 0.4 per cent in January, as growth in construction was offset by falls in services and production.”
Labour: Britain is still lagging behind on the global stage
Rachel Reeves MP, Labour’s Shadow Chancellor of the Exchequer, says:
“Despite our enormous promise and potential as a country, Britain is still lagging behind on the global stage with growth on the floor.
“The reality of growth inching along is families worse off, high streets in decline and a weaker economy that leaves us vulnerable to shocks.
“These results are exactly why Labour’s mission to secure the highest sustained growth in the G7 is so important - it’s that level of ambition that we need to strengthen our economy, get our high streets thriving again and make families across every part of Britain better off.”
Yesterday, Labour launched its five-point plan to support UK high streets, which included cutting business rates and energy bills, stamping out late payments, and vouchers for energy efficiency measures including “double glazing at a local cinema, a new heat pump in a cafe or an electric vehicle for a takeaway”.
Hunt: economic outlook is looking brighter than expected
Jeremy Hunt has taken a glass-half-full approach to the news that the UK economy flatlined in February – pointing out that it did grow (by just 0.1%) in the last quarter.
The chancellor says that the UK is now going to avoid recession:
“The economic outlook is looking brighter than expected - GDP grew in the three months to February and we are set to avoid recession thanks to the steps we have taken through a massive package of cost-of-living support for families and radical reforms to boost the jobs market and business investment.”
ONS: Strikes held back growth
Strikes by civil servants and teachers held back growth in the economy in February, says Darren Morgan, director of economic statistics at the Office for National Statistics.
The PCS union, which represents civil servants, held the largest civil service strike for many years in February, as it stepped up a month of strikes over pay, pensions, redundancy terms and job security.
Tens of thousands of teachers in England, Scotland and Wales held strike action at the end of the month.
Morgan says this led to the flatlining in economic activity in February.
“The economy saw no growth in February overall.
“Construction grew strongly after a poor January, with increased repair work taking place.
“There was also a boost from retailing, with many shops having a buoyant month.
“These were offset by the effects of Civil Service and teachers’ strike action, which impacted the public sector, and unseasonably mild weather led to falls in the use of electricity and gas.”
Commenting on today’s GDP figures for February, @DarrenM44 said: (1/2)
— Office for National Statistics (ONS) (@ONS) April 13, 2023
⬇️ pic.twitter.com/hsQkkxhPuQ
.@DarrenM44 continued: (2/2)
— Office for National Statistics (ONS) (@ONS) April 13, 2023
⬇️ pic.twitter.com/P8dD6U7L2I
The largest contributor to the negative growth in services in February 2023 was education, which fell 1.7% in the month, today’s GDP report shows.
This decline follows growth of 2.5% in January 2023. On the three months to February 2023, compared with the three months to November 2022, education fell by 1.9%.
Updated
On a monthly basis, the UK economy is now estimated to be 0.3% above its pre-Covid-19 levels in February 2020.
UK economy stagnated in February
Newsflash: UK economy growth has flatlined.
UK GDP was unchanged in February, new data from the Office for National Statistics shows, weaker than the forecast for 0.1% growth.
The ONS reports that the services sector output fell by 0.1%, while production fell 0.2% and construction grew 2.4%.
GDP was flat (0.0% growth) in February:
— Office for National Statistics (ONS) (@ONS) April 13, 2023
▪️ services fell 0.1%
▪️ production fell 0.2%
▪️ construction grew 2.4%
➡️ https://t.co/r3JLJ4Au3i pic.twitter.com/tvrchaiD6Y
This follows growth of 0.4% in January, which has been revised up from growth of 0.3% in the previous publication.
And the broader picture is that GDP grew by 0.1% in the three months to February 2023.
The ONS says:
The services sector fell by 0.1% in February 2023, after growing by 0.7% in January 2023, revised up from 0.5% in the previous publication.
The largest contributions to the fall in services output in February 2023 came from education and public administration and defence; compulsory social security, industrial action took place in both of these industries in February 2023.
Output in consumer-facing services grew by 0.4% in February 2023, this follows growth of 0.3% in January 2023 (unrevised from our previous publication); the largest contributor to this growth came from retail trade, except for motor vehicles and motorcycles.
Production output fell by 0.2% in February 2023, following a fall of 0.5% in January 2023, revised from a fall of 0.3% in the previous publication.
The construction sector grew by 2.4% in February 2023, after falling by 1.7% in January 2023 (unrevised from the previous publication).
Updated
UK will beat IMF’s dismal growth forecasts, chancellor Hunt Say
UK chancellor Jeremy Hunt has insisted that the International Monetary Fund is wrong about Britain’s economic prospects.
Hunt has pledged that the UK economy will do “significantly better” than the International Monetary Fund’s bleak outlook over the coming 24 months.
He pushed back against the IMF’s forecast for the UK will shrink 0.3% this year and expand just 1% in 2024.
Speaking to Bloomberg News on the sidelines of the IMF’s spring meeting in Washington, Mr Hunt said:
“We will do better than that. Our forecasts are significantly better.”
Sanjay Raja, chief UK economist at Deutsche Bank, predicts the UK economy will stagnate this year.
Raja told clients this week that Deutsche expects UK GDP growth to have slowed down in Februaryto +0.1%, after January GDP came in slightly stronger at 0.3% month-on-month.
He explained:
We expect broad-based growth in February, driven by services activity (0.1% m-o-m), industrial production (0.2% m-o-m), and construction output (0.7% m-o-m).
Where does this leave us? We still expect Q1-23 GDP to flatline, and Q2-23 GDP to contract (albeit marginally at -0.2% q-o-q). Risks to our H1-23 forecasts are tilted marginally to the upside, however. Big picture, as we recently noted, we no longer see a technical recession on the horizon. Instead, we see the UK in stagnation this year, before expanding in 2024.
Introduction: UK February GDP report coming up
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Although a recession has been avoided, for now at least, the UK economy remains in a troubling state. The International Monetary Fund predicts it will shrink this year, the worst performance among the G20 nations.
High interest rates, energy costs, and the ongoing cost of living crisis are all hitting growth.
And today, we’ll learn how the economy fared in February when the Office for National Statistics releases its first estimate of GDP that month, at 7am.
Economists predict that growth slowed in February, to around 0.1%, after a 0.3% rise in GDP in January. Any growth would be welcome, and help avoid the economy shrinking in the first quarter of this year.
Having seen the UK economy revised up to 0.1% GDP growth in Q4, thus avoiding the ignominy of a technical recession, the economic data since the end of last year has shown much greater resilience than many had feared at the end of last year.
So says Michael Hewson of CMC Markets, who explains:
This has been particularly notable in the services sector, which after a weak Q4 has seen recent monthly PMI numbers recover strongly in February and March. Consumer spending has also picked up sharply with a lot of the recent retail updates showing that while consumers do have money to spend, they are spending it more judiciously. In January the UK economy grew by 0.3%, despite sky-high inflation, as consumer spending rebounded with retail sales gaining 0.9%.
This was followed by a 1.2% gain in February, although sales volumes have lagged due to higher prices. Against such a backdrop, another positive GDP number for February could well go some way to increasing the odds of a positive Q1 GDP print for 2023, with expectations of a 0.1% gain, although index of services could act as a drag after a strong January of 0.5%.
Construction output is also expected to rebound by 1% in February after a sharp -1.7% decline in January.
Minutes from the US central bank’s last monetary policy meeting showed that its policymakers fear that the fallout from the US banking crisis is likely to tilt America’s economy into recession later this year.
Also coming up today
Supermarket giant Tesco will report its preliminary results for 2022/23 at 7am.
The IMF and World Bank’s Spring Meeting continues in Washington, as top policymakers discuss the state of the world economy.
The latest US PPI data will show how fast US goods and services producers lifted their prices last month. In January this key inflation measure fell dramatically.
We’ll also hear from the Bank of England’s chief economist, Huw Pill, on the state of the UK economy this afternoon.
Yesterday the governor of the Bank of England, Andrew Bailey, played down the risks of a system-wide banking crisis, paving the way for further interest rate increases to combat the UK’s high inflation levels.
The agenda
7am BST: UK GDP report for February
7am BST: UK goods trade balance for February
10am BST: Eurozone industrial production report for February
1.30pm BST: US PPI index of producer price inflation for March
1.30pm BST: US initial jobless claims
2pm BST: Bank of England chief economist Huw Pill speaks on “Developments in the UK Economy and Monetary Policy”
