Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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