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Sterling recovery
The pound has recovered some of its value since it dropped in August to a decade-low against the euro of €1.07. Sterling’s summertime blues were triggered by Boris Johnson’s declaration soon after becoming prime minister that the government would suspend parliament as it prepared to leave the EU without a deal. Turmoil in the commons triggered another fall in early September, when the pound hit a three-year low against the dollar of below $1.20. But by the middle of the month, the government’s insistence that it would prefer to strike a deal with Brussels pushed sterling back to $1.25 and €1.13.
Traders cautious amid slowdown concerns
Fears that the two main drivers of global economic growth, China and the US, could be heading for a severe slowdown next year have frayed the nerves of traders across the main financial centres in London, Tokyo and New York. The US central bank, in a move to prevent the US economy from slowing, cut interest rates. Stock markets rewarded the Federal Reserve with a rally that took the Dow Jones Industrial Average from a two-month low of 25,479 on 14 August back up to a near-record 27,219 on 13 September. The FTSE followed suit, though with a more modest increase from 7,067 to 7,289.
Better than forecast
Companies wait for Brexit to raise prices
UK inflation fell to its lowest level since late 2016 as the end of summer sales kept clothing prices down, while economists suggested that some companies were waiting for the outcome of Brexit before putting prices up. The consumer price index (CPI) dipped to 1.7% in August from 2.1% in July, according to the Office for National Statistics, easing some of the pressure on consumers. Economists warned that weakness in the pound since Boris Johnson became prime minister combined with a no-deal Brexit could push up inflation again in future.
Better than forecast
Import volumes slide after stockpiling rush
Britain’s trade deficit – the shortfall between exports and imports – narrowed in July as companies held back from buying goods from overseas. Analysts said that British firms had opted to deplete their stockpiles built up ahead of the original Brexit deadline in March, rather than place new orders with overseas suppliers. The decline in imports reverses the trend earlier in the year when companies ramped up their stockpiles, rushing to buy goods from abroad to avoid Brexit disruption and pushing the trade deficit to record levels.According to the Office for National Statistics, the UK goods and services trade deficit in the three months to Julydecreased to £2.9bn following a £15.2bn, or 8.5% drop in imports to £164.4bn.
Worse than forecast
Global economy and Brexit fears damage business activity
Activity in Britain’s private sector narrowly contracted last month, as firms nationwide hit the pause button on big spending decisions and starting new contracts as Brexit loomed. With little sign of a political breakthrough, factory output declined and construction activity slumped, according to the latest snapshots from IHS Markit and the Chartered Institute of Procurement and Supply (Cips). Meagre growth in service-sector output, which accounts for about 80% of the economy, failed to offset a downturn in August across the board. The IHS Markit/Cips purchasing managers index (PMI) fell from 50.3 in July to 49.7 last month, on a scale where anything above 50.0 indicates economic growth. Some analysts said Britain looked likely to remain in contraction in the third quarter of 2019, marking the second consecutive three-month period of decline in GDP: the technical definition of recession.
Worse than forecast
Job creation slows but wage growth accelerates
Cracks have begun emerging in the jobs market with official figures indicating that employers are starting to hold off hiring new staff ahead of Brexit. Despite workers’ pay growth accelerating to the fastest annual rate in more than a decade, hiring eased in the three months to July, as 31,000 people were added to the workforce – below the expectations of City economists. Job vacancies also dropped for the seventh month running in a sign of firms growing more cautious about hiring as the economy slows. Despite the warning signs, the labour market remains relatively strong. Unemployment is the lowest since the mid 1970s and growth in workers’ weekly pay, including bonuses, picked up to 4%, the fastest average wage growth since mid-2008.
Worse than forecast
Retail outlook remains gloomy
Almost every summer’s day brought a message of gloom from the high street. Argos ranks among the latest, with its owner Sainsbury’s closing more than 50 stores. Even stalwarts such as Next are suffering, though it blamed the weather for falling sales of its autumn clothes rather than systemic decline in high street sales. Official figures showed a drop in retail sales volumes of 0.2% in August, though an upward revision to July’s figures meant in the three months to August, retail sales rose 0.6%, the same growth rate as in the previous three months. August’s decline was blamed on consumers deciding to rein in their online spending. The lack of online growth exposed the long decline in spending at department stores and shopping centres, many of which are in financial trouble.
Better than forecast
Borrowing falls (but may soon rise again)
After six years of reductions in the UK’government’s annual borrowing,it is on course to rise quite strongly in 2019 . While the official figures for August showed the deficit was £6.4bn, which was £0.5bn lower than in August 2018, the monthly figure was better than expected and the only year-on-year improvement in the current financial year. It still left the public finances on course to breach the government’s fiscal rule of keeping the deficit within 2% of GDP. If the trend continues, borrowing across 2019-20 is on course to total £53.0bn, or about 2.4% of GDP. It means Sajid Javid will need to relax the rules further if he is to press ahead with the extra spending he promised in the Whitehall spending review and the tax cuts he is expected to unveil in his forthcoming budget (an election notwithstanding).
Better than forecast
House prices stage modest increase
House prices across the UK still appear to be rising, although only just, as Brexit uncertainty saps the confidence of buyers and sellers. Prices are falling in London and the south-east but are continuing to rise in the north and Midlands. A gauge of house prices from the Royal Institution of Chartered Surveyors – which shows the difference between members reporting price rises and falls – improved to -4 in August from -9 in July, above the forecasts of City economists. Figures from the Land Registry and ONS reported that the year-on-year increase in UK house prices slowed to 0.7% in July, which was the weakest level since November 2012.
And another thing we’ve learned this month … consumer confidence in Europe hit by Brexit uncertainty
The slowdown in the British economy in recent months comes as the major economies of the EU have suffered the spillover effects of Brexit uncertainty and the US-China trade war. Consumers have tended to ride out fears of an economic slowdown, preferring to carry on spending. But consumer sentiment about the health of the economy, as measured by the European commission in its monthly barometer, fell in September to the biggest low since the 2012 euro crisis. Households feel better about their personal finances. However, they don’t like the look of what they see around them and are starting to worry in the same way they did seven years ago and clamp down on their spending.
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