Download BCC Monthly Economic Review October 2016 – PDF

Monthly Economic Review
October 2016
(Based on September 2016 data releases)
Monthly headlines:
 UK GDP growth in Q2 revised upwards, with stronger service sector output
 BCC cuts UK growth outlook with consumer spending and investment expected to weaken
 UK interest rates expected to be cut again by the end of 2016
01/10/2016
Annual GDP Growth %
2.0
0.5
0.0
-1.0
2016 Q2
2015 Q4
2015 Q2
2014 Q4
2014 Q2
2013 Q4
2013 Q2
2012 Q4
2012 Q2
2011 Q4
2011 Q2
2010 Q4
2010 Q2
2009 Q4
2009 Q2
2008 Q4
2008 Q2
2007 Q4
2007 Q2
-0.5
2006 Q4
0.0
2006 Q2
Quarterly GDP growth %
4.0
1.0
-2.0
-4.0
Quarterly
-1.5
Annual (RHS)
-6.0
-2.0
-2.5
-8.0
Source: ONS Quarterly National Accounts, Q2 2016
Chart 2: UK Unemployment
2.8
2.6
2.4
2.2
2.0
May-Jul 2016
Feb-Apr 2016
Nov-Jan 2016
Aug-Oct 2015
May-Jul 2015
Feb-Apr 2015
Nov-Jan 2015
Aug-Oct 2014
May-Jul 2014
Feb-Apr 2014
Nov-Jan 2014
Aug-Oct 2013
May-Jul 2013
Feb-Apr 2013
Nov-Jan 2013
Aug-Oct 2012
May-Jul 2012
Feb-Apr 2012
May-Jul 2011
Aug-Oct 2011
1.6
Nov-Jan 2012
1.8
Source: ONS Labour market, Q2 2016
Chart 3: Real Earnings Growth
6
5
4
3
2
1
-4
BCC Monthly Economic Review
May-Jul 2016
Feb-Apr 2016
Nov-Jan 2016
Aug-Oct 2015
May-Jul 2015
Feb-Apr 2015
Nov-Jan 2015
Aug-Oct 2014
May-Jul 2014
Feb-Apr 2014
Nov-Jan 2014
Aug-Oct 2013
May-Jul 2013
Feb-Apr 2013
Nov-Jan 2013
Aug-Oct 2012
May-Jul 2012
Feb-Apr 2012
Nov-Jan 2012
Aug-Oct 2011
May-Jul 2011
Feb-Apr 2011
-3
Nov-Jan 2011
-2
Aug-Oct 2010
0
-1
May-Jul 2010
...and real wage growth is strong for now...
CPI inflation was running at an annual rate of 0.6% in
August 2016, unchanged from July with rising food
prices and air fares, offset by falling fuel prices. With
annual pay growth rising by 2.3% in the three months
to July 2016, real earnings continue to rise at a solid
pace, boosting consumer spending power (see Chart
3). However, the declining value of the pound is
already feeding through into input costs and is likely
to push inflation higher in the coming months,
squeezing real incomes and consumer spending, a
key driver of economic growth.
1.5
Millions
...but while the UK jobs market strengthens ...
In the three months to July 2016, UK employment
rose by 174,000 compared with the previous three
months. The number of people who are unemployed
fell by 39,000 over the same period (see Chart 2). In
contrast, the timelier claimant count measure rose by
2,400 in August. Although the UK labour market
remains a major source of strength for the UK
economy, the BCC expect that UK labour market
conditions will weaken over the next year as
mounting uncertainty weighs on recruitment
intentions and slows employment growth.
Chart 1: Real GDP Growth
%
UK economic growth revised up to 0.7%...
The third official estimate of economic growth (GDP)
revealed that the UK economy grew by 0.7% (see
Chart 1) in Q2 2016, up from the previous estimate of
0.6%. The upward revision was mainly driven by
service sector output rising by 0.6% in Q2, up from
the previous estimate of 0.5%. Business investment
grew by 1.0% in Q2, double the previous estimate of
0.5%. Q2 GDP growth in annual terms was revised
down from 2.2% to 2.1%. Overall, the latest GDP
figures confirms that the UK economy grew at a
good pace in the run-up to the EU referendum.
Salesearnings
data, May
2015
Real earnings growth Source: ONS Retail
Annual
growth
CPI inflation
Source: ONS Labour Market data, September 2016
PAGE 1 OF 4
…BCC downgrades its UK growth forecasts…
The BCC has downgraded its UK economic growth
(GDP) forecast for 2016 from 2.2% to 1.8%. (see Table
1). The BCC has also downgraded its UK growth
forecast for 2017 from 2.3% to 1.0% and for 2018 from
2.4% to 1.8%. Mounting political and economic
uncertainty is likely to weigh investment, while rising
inflation and moderately weaker labour market
conditions are expected to dampen consumer
demand. On the upside, the drop in the value of
sterling is likely improve in the UK’s net trade position.
While we expect that the UK will avoid recession, UK
economic growth is set too slow sharply.
Table 1: BCC UK GDP Growth Forecast Comparison
2.2
1.8
2017
2.3
1.0
2018
2.4
1.8
2016 (%)
2017 (%)
2018 (%)
Bank of England
2.0
0.8
1.8
OBR
2.0
2.2
2.1
BCC
1.8
1.0
1.8
OECD
1.8
1.0
1.8
IMF
1.7
1.3
-
Sources: BCC, Bank of England, OBR, OECD and IMF
Chart 4: UK Current Acount Position (as a % of
5
GDP)
3
1
-3
-5
-7
BCC Monthly Economic Review
2016 Q2
2011 Q2
2006 Q2
2001 Q2
1996 Q2
1991 Q2
1986 Q2
1981 Q2
1976 Q2
1971 Q2
1966 Q2
-9
1961 Q2
% of GDP
-1
1956 Q2
Jul-96
May-97
Mar-98
Jan-99
Nov-99
Sep-00
Jul-01
May-02
Mar-03
Jan-04
Nov-04
Sep-05
Jul-06
May-07
Mar-08
Jan-09
Nov-09
Sep-10
Jul-11
May-12
Mar-13
Jan-14
Nov-14
Sep-15
Jul-16
2016
Table 2: UK GDP Growth Forecast Comparison
%
01/10/2016
Q3 2016 (%)
Source: BCC
…as does the OECD...
The Organisation for Economic Co-operation and
Development (OECD) has slightly upgraded its
forecast for UK GDP for 2016 to 1.8%, from its
previous forecast of 1.7%. However, the OCED
significantly downgraded UK growth forecast for
2017 from 2.0% to 1.0%. OECD’s latest forecasts are
now in line with the latest BCC growth forecasts (see
Table 2). The OECD also downgraded its forecasts for
global growth from 3.0% to 2.9% in 2016 and from
3.3% to 3.2% in 2017. This reflects downgrades in
major advanced economies, partly offset by stronger
growth from emerging-market commodity producers.
Chart 6: Public remains
Sector Debtaas
a % of GDP
...and
rebalancing
challenge...
90
The
UK ran a current account deficit (the difference
80
between
what we earned from other countries and
70
what
we spent) of £28.7 billion in Q2 2016, 6% higher
60
than
the deficit of £27 billion in Q1. The UK's current
50
account
deficit was equivalent to 5.9% of GDP in Q2,
40
up
from the 5.7% recorded in Q1 (see Chart 4). The
30
widening
of the UK’s current account deficit was
20
partly driven by the widening of the trade deficit from
£10 billion in Q1 to £12.7 billion in Q2. The size of the
UK’s current account deficit leaves the UK exposed
to economic shocks and confirms that rebalancing
the UK economy remains a major challenge.
Q1 2016 (%)
Source: Balance of Payments, Q2 2016
PAGE 2 OF 4
3
2
%
1
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
-1
2001
2000
0
-2
-3
Eurozone
UK
-4
-5
Sources: Oxford Economics/OECD
Chart 6: Real GDP: UK vs. Canada
2.0
1.5
1.0
0.5
2016 Q1
2015 Q3
2015 Q1
2014 Q3
2014 Q1
2013 Q3
2013 Q1
2012 Q3
2012 Q1
2011 Q3
2011 Q1
2010 Q3
2010 Q1
2009 Q3
2009 Q1
2008 Q3
2008 Q1
0.0
-0.5
-1.0
Canada
-1.5
UK
-2.0
-2.5
-3.0
Sources: ONS, Statistics Canada
Chart 7: US vs UK Interest Rates
8.0
7.0
6.0
5.0
4.0
US
UK
3.0
2.0
1.0
2016 Q3
2015 Q2
2014 Q1
2012 Q4
2011 Q3
2010 Q2
2009 Q1
2007 Q4
2006 Q3
2005 Q2
2004 Q1
2002 Q4
2001 Q3
2000 Q2
1999 Q1
1997 Q4
0.0
1996 Q3
…and US monetary policy set to tighten again.
The minutes from the Federal Reserve's September
meeting show the majority of policymakers expect a
rise in US interest rates by the end of the year. While
the Federal Open Market Committee opted to hold
rates between 0.25% and 0.5%, three officials voted
against the decision, the most dissents since December
2014. US interest rates rose for the first time in almost
a decade in December 2015 (See Chart 7). While US
GDP growth remains subdued, a further rate rise is a
signal that the central bank believes that US economic
conditions are normalising.
OECD
Forecast
4
Quarterly GDP Growth %
...Canada’s economy weakens...
Canada, the tenth largest economy, contracted by
0.4% in Q2 2016, the largest decline since Q2 2009
(see Chart 6). The decline was largely driven by a 4.5%
fall in exports in the quarter as well as the effects of
the Alberta wildfires on energy production. Business
investment dropped by 0.1%, the sixth successive
quarterly decline. In annual terms, Canada’s economic
output was 0.9% higher compared to Q2 2015. While
growth is likely to bounce back in Q3, the continued
adjustment towards lower oil prices mean that the
outlook for Canada remains subdued.
Chart 5: Real GDP: Eurozone vs UK
5
%
...while Eurozone growth is unrevised...
The second estimate of Eurozone GDP had growth at
0.3% for Q2 2016, unrevised from the previous
estimate, but down from the growth of 0.5% recorded
in Q1. Germany's economy, the biggest in the
Eurozone, grew by 0.4% (see Chart 5), down sharply
from the growth of 0.7% recorded in Q1. Slovakia
(0.9%) recorded the strongest growth, followed by
Spain (0.8%) and Cyprus (0.7%). In contrast, France,
Italy and Finland recorded no growth in the quarter.
However, while the outlook for the Eurozone remains
weak, the OECD predicts that in 2017 the Eurozone
will outgrow the UK for the first time since 2011.
Sources: Bank of England, Federal Reserve
Bottom line: Overall, last month’s economic data releases confirm that the UK economy remains in decent shape.
However, if UK economic growth slows as we expect it is vital that more is done to support business investment and
confidence, including much needed investment in our infrastructure.
For more information please contact: Suren Thiru, Head of Economics and Business Finance. Email: [email protected]. Tel: 020 7654 5801
01/10/2016
BCC Monthly Economic Review
PAGE 3 OF 4
Economic summary chart
Deteriorating
Sector
Household
No change
Improving
Indictors (sources)
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Retail Sales (ONS)
Consumer Confidence (GfK NOP)
House Prices (Halifax)
New car sales (SMMT)**
Mortgage approvals (Bank of England)
Business
Business confidence (BCC)***
c
c
c
c
c
c
Business lending (Bank of England)
c
c
Service sector output (ONS)
Production output (ONS)
c
c
c
Investment intentions (BCC)**
c
c
c
c
Labour market Employment (ONS)
Unemployment (ONS)
Claimant count (ONS)
Earnings (ONS)
Economic Inactivity (ONS)
Government
Public sector net borrowing (ONS)**
Public sector net debt % of GDP (ONS)**
Tax receipts (HMRC)**
Current Budget Deficit (ONS)**
External
UK trade balance (ONS)
Export Sales (BCC)***
Export orders (BCC)***
Financial
Exchange rate (Bank of England)
Equity Prices (Bloomberg)
10 year Government bonds (Bloomberg)
*Colours indicate an improvement or deterioration of each indicator and refer to monthly changes unless stated. For example, an improvement in employment refers to an increase, while an improvement in
unemployment refers to a fall. Also a depreciation in the exchange rate refers to an improvement and an appreciation in the exchange rate refers to a deterioration. Dates refer to the release dates for each indicator.
**Annual changes. ***Quarterly changes. ****Latest figures are estimates.
01/10/2016
BCC Monthly Economic Review
PAGE 4 OF 4