Business confidence hits lowest level since the financial crisis

November 6, 2018

Business confidence in UK has fallen to its lowest level since 2008 amid a lack of progress in Brexit negotiations, according to new figures published today.

The Institute of Chartered Accountants in England and Wales’ (ICAEW’s) Business Confidence Monitor index showed a sharp fall in confidence since last quarter from -0.2 to -12.3, lower than after both the 2016 referendum and last year’s general election.

The accountancy institute blamed a lack of progress in Brexit negotiations as one likely reason for the decline, with the figures falling sharply after Theresa May’s Chequers plan was rejected by EU leaders at the Salzburg summit in September.

FTSE 350 companies have a more negative outlook than privately-owned businesses, according to the index, though the decline in confidence is widespread across most sectors and all regions.

Last week chancellor Philip Hammond unveiled his Budget by announcing the era of austerity is “finally coming to an end”, but also set aside a total of £2bn in the event of a no-deal Brexit.

Related: 5 ways life could become harder for British people if there is a no-deal Brexit

The survey of 1,000 chartered accountants revealed 42 per cent of businesses were less confident about their economic prospects over the next year, compared with 31 per cent last quarter. Only 22 per cent said they were more confident, compared to 33 per cent the previous quarter.

Despite this, growth in general sales volumes is still roughly four per cent and is expected to remain at this level over the next 12 months.

A closely followed index out today shows that the UK services industry saw its slowest growth since March. The purchasing managers’ index, compiled by IHS Markit and the Chartered Institute of Procurement & Supply, was down to 52.2 in October from 53.9 in September.

Sharron Gunn, ICAEW executive director, said: “Business confidence is at its lowest point since the financial crisis ten years ago. Leaving the EU and its potential impact is at the front of everyone’s minds.

“This is a difficult time to run a business, let alone finance the major investments the UK economy will desperately need post-Brexit to drive growth. The Budget offered some relief to business but more significant action is needed by government to provide stability and reassurance.”

A government minister today said the UK and EU are close to striking an agreement on financial services access post-Brexit, while Brexit secretary Dominic Raab has claimed a deal is possible by 21 November.

Source: City A.M.

How has Britain’s economy fared ten years since the financial crisis?

October 8, 2018

Britain’s economy is finally off the interest rate life-support brought in nearly 10 years ago after the financial crisis struck.

But experts warn “deep scars” left by the recession has made the UK vulnerable to new shocks.

When the Bank of England pushed the button on its milestone interest rate rise last November, it marked the first hike since July 2007, when Gordon Brown had just taken over as prime minister and markets were blissfully unaware of the financial crisis brewing.

Now following the second increase to 0.75% this August, rates are at last above the emergency low of 0.5% where they had languished since the Bank’s dramatic cut in March 2009 to contain the fall-out from the crisis.

Mark Carney
Bank of England Governor Mark Carney said the economy is now at a new ‘lower speed limit’ (Victoria Jones/PA)

But does this mean the economy is back to normal?

Most economists and even the Bank Governor Mark Carney himself have been quick to stress that, while fairly resilient, Britain’s economy is now merely trundling along at a “new, lower speed limit”.

Official data showing unemployment at a 43-year low masks the long-lasting effects that the crisis and subsequent recession has had on the economy.

“It’s clear that 10 years on, the recession has left deep scars on the labour market and average family real incomes,” according to Chris Williamson, chief business economist at HIS Markit.

“The long-term damage is evident in the sheer scale at which the economy has failed to catch up for lost growth,” he said.

The recession that followed the credit crunch and financial crisis saw output plummet by more than 6%, as it began shrinking in the second quarter of 2008 and continued to contract until the third quarter of 2009.

It took five years for the economy to get back to the size it was before the recession and in the aftermath, unemployment reached its highest rate since 1995, with almost 2.7 million people looking for work by the end of 2011.

The Office for National Statistics (ONS) calculated in April that the economy is now around 11% bigger than it was before the recession.

But it is far behind where it would have been if the crisis and recession had not happened.

Recession key facts

  • The economy fell by more than 6% during the 2008-09 recession
  • Unemployment reached its highest rate since 1995
  • The economy is now around 11% bigger than it was before the recession

Mr Williamson said: “It’s likely that the economy is around 15% smaller than it would have been if a recession had been avoided. This is growth that has been lost forever.”

And while unemployment returned to its pre-downturn rate at the end of 2015, earnings have failed to keep up with inflation, with only a brief period of respite in recent months.

The UK’s so-called labour productivity – how much money each worker adds to the economy – also slumped in 2008 as the recession struck and has not recovered since.

Some of this may also be down to a fundamental change in the labour market, given the rise in the “gig” economy as the likes of ride-hailing service Uber have increased temporary, freelance workforces.

But as experts have been left scratching their heads over how to resolve the “productivity puzzle”, they have come to the conclusion that UK growth – at 0.4% in the latest quarter – is limited to a “new normal”.

Laith Khalaf at Hargreaves Lansdown said: “In today’s economic climate, 0.4% quarterly growth draws a small cheer from the crowd, though it would have been deemed below par prior to the financial crisis.

“In the 10 years running up to the crisis, UK economic growth averaged 0.73% per quarter.”

Where once rate hikes would have signalled a booming economy that needs be reined in, the last two increases are taking place when activity is expanding relatively slowly.

Mr Williamson said: “It would be wrong to believe that the raising interest rates means we are back to normal.

“In fact there is a ‘new normal’ which means that, due to the drop in productivity and other structural changes to the economy – such as reduced immigration – the economy cannot grow as fast as it used to without inflation rearing its head.”

Related: Chancellor says no deal Brexit will damage UK GDP for years to come

So while the tenth anniversary of the financial crisis sees the economy now in a very different place from the dark days of 2008-2009, it has been left with challenges and the ever-present threat of new risks emerging, not least the Brexit deadline and global trade wars.

Philip Shaw, an economist at Investec, said Britain has also been left in a weakened state.

“In many ways, the economy is less resilient than it was pre-crisis. There’s less room to stimulate monetary policy,” he warned.

At least I’m not waking up in a cold sweat any more

Philip Shaw, Investec

At 0.75%, the Bank has little to offer this time around in terms of rate cuts to ward off the threat of another recession – a risk that has become all too real as Brexit talks flounder.

Mr Williamson said it hangs in the balance: “A bad deal, with high tariffs and non-tariff barriers for example, is unlikely to be one that the economy fares well against, and could lead to another recession. However, a good deal could see the economy regain strength.”

The Government has at least got its own finances to a more stable position to withstand wider shocks.

Borrowing is forecast to fall to £37.1 billion this financial year – far below the heady days after the crisis, when it had at one stage spiralled as high as £151.7 billion in 2009-10.

This should give a little comfort amid the Brexit anxiety, according to Mr Shaw.

“We will get through this,” he said. “We’re in a much better space than we were 10 years ago.

“And at least I’m not waking up in a cold sweat any more,” he added.

Source: Shropshire Star

Britain’s unemployment rate has plunged to 4% — a level not seen in more than 40 years

August 17, 2018
  • Britain’s unemployment rate dropped to just 4% between April and June, the lowest level since the early 1970s.
  • Economists polled in the run up to the release had expected an unemployment rate of 4.2%.
  • After increasing sharply during the financial crisis, the UK’s unemployment rate has been rapidly dropping for almost a decade.
  • The number of people in work also increased over the three months from April to June, with 32.39 million people in work.

LONDON — Britain’s unemployment rate fell to just 4% between April and June this year — the lowest level since comparable records began in the early 1970s — according to the latest data from the Office for National Statistics, published on Tuesday morning.

The Britain’s unemployment rate, those not in work but who want a job, dropped from 4.2% over the previous three month period. Economists had expected the rate to remain at 4.2% level.

There were 1.36 million unemployed people in the UK over the three months, the ONS said, 65,000 fewer than in the previous data period.

More people were in work over the period, the ONS added, saying that there were 32.39 million people in the UK with jobs, an increase of 42,000.

“The number of people in work has continued to edge ahead, though the employment rate was unchanged on the quarter,” senior ONS statistician Matt Hughes said in a statement.

Related: Chancellor says no deal Brexit will damage UK GDP for years to come

“However, the number of vacancies is a new record high, while the unemployment rate is now at its lowest since the winter of 1974-75.”

The high number of vacancies suggests that the number of Brits in employment could rise significantly in the near future.

After increasing sharply during the financial crisis, the UK’s unemployment rate has been rapidly dropping for almost a decade, as the chart below illustrates:

Screen Shot 2018 08 14 at 09.40.17Office for National Statistics

While on the surface the data looks good, Ruth Gregory, a senior UK economist at Capital Economics, warned about the underlying cause of the drop.

“Admittedly, the ILO measure of unemployment fell by 65,000, pushing the unemployment rate down to 4.0% – its lowest since 1975 – but this reflected a jump in the number of people leaving the workforce,” she said in an email.

The UK’s unemployment rate may have beaten expectations, but forecasts proved too optimistic when it came to wages. Total earnings for British workers excluding bonuses rose by 2.7% as expected, but earnings including bonuses increased by just 2.4%, below forecasts.

“Average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.4% excluding bonuses, and by 0.1% including bonuses, compared with a year earlier,” the ONS said.

The pound initially spiked higher against the dollar on the data release, but quickly fell back, perhaps reflecting the weaker than expected wage growth. By 9.50 a.m. BST (4.50 a.m. ET), it was trading at $1.2775, a gain of just 0.09% on the day.

Source: Business Insider UK