Monday September 18 2017
UK Interest Rates Likely to Rise Over Coming Months
BoE | Joana Ferreira | joana.ferreira@tradingeconomics.com

The withdrawal of monetary stimulus is likely to be appropriate over the coming months, if the economy and price pressures keep growing, Bank of England Governor Mark Carney said in a speech at the IMF on Monday. Still, there are considerable risks to the UK outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal, he added.

Excerpts from Bank of England Governor Mark Carney speech at the IMF:

On balance, the de-integration effects of Brexit can be expected to steepen the Phillips Curve and to be inflationary. At present, the main question concerns the extent to which this adjustment has been brought forward. 

The latest indicators are consistent with UK demand growing a little in excess of the diminished rate of potential supply growth, and the continued erosion of what is now a fairly limited degree of spare capacity. If anything, recent developments suggest that the remaining spare capacity in the economy is being absorbed a little more rapidly than had been expected, and that inflation remains likely to overshoot the 2% target over the next three years.

The MPC’s reaction function is clear. The continued erosion of slack lessens the trade-off that the MPC is required to balance and, all else equal, reduces the MPC’s tolerance of above-target inflation.

As the Committee stated last week, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.

The case for a modest monetary tightening is reinforced by the possibility that global equilibrium interest rates may be rising, meaning that monetary policy has to move in order to stand still.

Any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent, and to be consistent with monetary policy continuing to provide substantial support to the economy.

There remain considerable risks to the UK outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal. The MPC will respond to these developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation. 




Thursday September 14 2017
BoE Set to Raise Rates
BoE | Joana Ferreira | joana.ferreira@tradingeconomics.com

The Bank of England voted by seven to two to keep the Bank Rate at a record low of 0.25 percent on September 14th, 2017, as widely expected, saying estimates of private final demand were softer than anticipated and underlying pay growth has shown some signs of recovery, albeit remaining modest. Still, policymakers agreed that some withdrawal of monetary stimulus is likely to be appropriate over the coming months if the economy continues to grow and underlying inflationary pressures persist.

Excerpts from the BoE Monetary Policy Summary:
The MPC set out its most recent assessment of the outlook for inflation and activity in the August Inflation Report.  That assessment depended importantly on three main judgments: that the lower level of sterling continues to boost consumer prices broadly as projected, and without adverse consequences for inflation expectations further ahead; that regular pay growth remains modest in the near term but picks up over the forecast period; and that subdued household spending growth is largely balanced by a pickup in other components of demand.
Since the August Report, the relatively limited news on activity points, if anything, to a slightly stronger picture than anticipated. GDP rose by 0.3% in the second quarter, as expected in the MPC’s August projections, although initial estimates of private final demand were softer than anticipated. The unemployment rate has continued to decline, to 4.3%, its lowest in over 40 years and a little lower than forecast in August. Survey indicators are consistent with continued strength in employment growth. Evidence continues to accumulate that the rate of potential supply growth has slowed in recent years. Overall, the latest indicators are consistent with UK demand growing a little in excess of this diminished rate of potential supply growth, and the continued erosion of what is now a fairly limited degree of spare capacity. Underlying pay growth has shown some signs of recovery, albeit remaining modest.
The sterling exchange rate has been volatile and the price of oil has increased. Headline and core CPI inflation in August were slightly higher than anticipated. Twelve-month CPI inflation rose to 2.9% and is now expected to rise to above 3% in October. 
The circumstances since the referendum on EU membership, and the accompanying depreciation of sterling, have been exceptional. Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years. The MPC’s remit specifies that, in such exceptional circumstances, the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity. Recent developments suggest that remaining spare capacity in the economy is being absorbed a little more rapidly than expected at the time of the August Report, and that inflation remains likely to overshoot the 2% target over the next three years.
All MPC members continue to judge that, if the economy follows a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations. A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target. All members agree that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent. 



Wednesday September 13 2017
UK Unemployment Rate Drops to Lowest Since 1975
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

UK unemployment rate declined to 4.3 percent in the three months to July of 2017 from 4.6 percent in the February to April period and below market expectations of 4.4 percent. It was the lowest jobless rate since the three months to May of 1975, as the number of unemployed continued to fall.

There were 1.46 million unemployed people, 75,000 fewer than for February to April 2017 and 175,000 fewer than for a year earlier. The unemployment rate was 4.3 percent, down from 4.9 percent for a year earlier and the lowest since 1975.

There were 32.14 million people in work, 181,000 more than for February to April 2017 and 379,000 more than for a year earlier. The employment rate was 75.3 percent, the highest since comparable records began in 1971.

There were 8.74 million people aged from 16 to 64 who were economically inactive, 107,000 fewer than for February to April 2017 and 96,000 fewer than for a year earlier. The inactivity rate was 21.2 percent, down from 21.6 percent for a year earlier and the lowest since comparable records began in 1971.

Latest estimates show that average weekly earnings for employees in the UK in nominal terms (that is, not adjusted for price inflation) increased by 2.1 percent, both including and excluding bonuses, compared with a year earlier. In real terms (that is, adjusted for price inflation), average weekly earnings fell by 0.4 percent, both including and excluding bonuses, compared with a year earlier.




Tuesday September 12 2017
UK August Inflation Rate Higher than Expected
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

Consumer prices in the United Kingdom rose by 2.9 percent in the year to August 2017, beating market expectations of 2.8 percent and following a 2.6 percent gain in the previous month. Rising prices for clothing and motor fuels were the main contributors to the increase.

Year-on-year, prices rose further for: Clothing and footwear (4.6 percent, the biggest rise since the consumer price index was launched in 1997, from 3.2 percent in July); transport (3.2 percent from 3.1 percent in July), in particular fuels and lubricants (5.1 percent from 2 percent); furniture, household equipment and maintenance (4.2 percent from 3.8 percent); recreation and culture (1.8 percent from 1.4 percent); and restaurants and hotels (3.5 percent from 3.1 percent). Meanwhile, inflation was steady for housing, water, electricity, gas and other fuels (at 2.2 percent) and miscellaneous goods and services (at 1.9 percent); while prices increased at a softer pace for food and non-alcoholic beverages (2.1 percent from 2.6 percent in July) and health (2.6 percent from 2.7 percent).

The consumer prices index including owner occupiers’ housing costs (CPIH) rose by 2.7 percent in August, up from 2.6 percent in July.

The annual core inflation rate, which excludes prices of energy, food, alcohol and tobacco, rose to 2.7 percent in August, from 2.4 percent in the previous month and above market consensus of 2.5 percent.

On a monthly basis, consumer prices jumped 0.6 percent after falling 0.1 percent in July and beating market forecast of a 0.5 percent gain. Prices rose sharply for clothing and footwear (2.4 percent), fuels and lubricants (1.6 percent), furniture, household equipment and maintenance (1.8 percent), and communication (1.7 percent).




Friday September 08 2017
UK Trade Deficit Unchanged in July
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The UK’s deficit on trade in goods and services was almost unchanged at GBP 2.87 billion in July 2017, compared with a downwardly revised GBP 2.91 billion gap in June.

Exports of goods and services from the United Kingdom decreased by 0.2 percent to GBP 49.63 billion in July from GBP 49.72 billion in June, as decreases in sales of erratics (-16.6 percent) and oil (-16.4 percent) more than offset export increases of food, beverages and tobacco (8.1 percent) and finished manufactures (1.2 percent). Among major trading partners, sales of goods to the EU shrank by 0.3 percent, as sales declined to the Netherlands (-5.5 percent), France (-3.8 percent) and Germany (-1.7 percent). Also, exports of goods to non-EU countries dropped 0.4 percent, namely to Switzerland (-40.6 percent), Norway (-21.2 percent) and Canada (-8.4 percent).

Imports of goods and services to the United Kingdom declined by 0.2 percent to GBP 52.50 billion from GBP 52.63 billion in the previous month, dragged by lower purchases of basic metals (-4.9 percent) and semi-manufactures (-4.4 percent). Among trading partners, imports of goods from non-EU countries fell by 0.9 percent, as purchases fell from Switzerland (-21 percent), Canada (-20.7 percent), Hong Kong (-8.1 percent) and the US (-5.6 percent). Meanwhile, imports of goods from the EU increased by 0.5 percent, mainly from Ireland (11.7 percent) and Italy (5.1 percent).

In the three months to July, the trade deficit widened by GBP 0.4 billion from the previous three-month period to GBP 8.6 billion, primarily due to a widening of the trade in goods deficit by GBP 1.1 billion, partially offset by a widening of the trade in services surplus by GBP 0.7 billion.




Thursday August 24 2017
UK Q2 GDP Annual Growth Confirmed at 1-Year Low
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The British economy grew 1.7 percent year-on-year in the second quarter of 2017, unrevised from the preliminary estimate and following a 2 percent expansion in the previous period. It was the lowest annual growth rate since the second quarter of last year, as household spending rose at softer pace while business investment stalled.

On the expenditure side, household expenditure growth eased to 2 percent from 2.6 percent in Q1; and business investment stalled after an increase of 0.7 percent in the previous period. Still, overall gross fixed capital formation went up at a faster 2.5 percent (2 percent in Q1) and government spending grew by 1.2 percent (0.8 percent in Q1).

Imports jumped 3.7 percent, following a 3.3 percent gain in Q1; while exports rose at a slower 2.4 percent, after rising by 2.9 percent the previous period. As a result, the trade deficit widened to £13.8 billion from £11.4 billion in Q2 2016. 

On the production side, the service industries expanded 2.3 percent, the same pace as in Q1, as output rose for: Distribution, hotels and restaurants (3.5 percent, the same as in Q1); transport storage and communications (3.9 percent from 3.2 percent); business services and finance (1.9 percent from 2.4 percent); and government and other services (1.4 percent from 1.1 percent). Industrial production dropped 0.3 percent (2.3 percent in Q1), as output fell for: Electricity, gas, steam and air conditioning supply (-4.8 percent from 0.7 percent); and mining and quarrying (-0.9 percent from 1.1 percent). Meanwhile, output rose at a slower pace for: Manufacturing (0.2 percent from 2.5 percent) and water supply, sewerage, waste management and remediation activities (2 percent from 3.8 percent). Construction expansion slowed to 0.4 percent from 2.8 percent in Q1.




Thursday August 24 2017
UK Q2 GDP Growth Rate Confirmed at 0.3%
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The UK economy advanced 0.3 percent on quarter in the three months to June of 2017, unrevised from the preliminary estimate and following a 0.2 percent expansion in the previous period. There was relatively strong growth in government spending and investment, while household consumption rose at softer pace and business investment stalled.

From the expenditure side, the positive contribution to GDP came from government spending (0.1 percentage points), gross capital formation (0.1 percentage points) and household final consumption expenditure (0.1 percentage points); while net trade had no contribution to growth.

Government spending expanded by 0.6 percent (0.7 percent in Q1 2017), with healthcare being the largest contributor while public administration expenditure fell. Gross fixed capital formation grew by 0.7 percent (1 percent in Q1). The sectors contributing to GFCF growth were general government, public sector dwellings and private sector transfer costs, while business investment stalled. Meanwhile, household expenditure advanced by only 0.1 percent, the lowest quarter-on-quarter growth since Q4 2014, after rising by 0.4 percent in the previous period. The slowdown was driven by a decline in growth in household expenditure on transport, including motor cars. Household expenditure on transport declined by 2.2 percent compared with a relatively strong Q1 performance, where transport grew by 1.4 percent. 

Imports of goods increased by 0.4 percent (2.1 percent in Q1) and those of services by 1.8 percent (0.4 percent in Q1). Exports of goods also increased, by 1.5 percent (1.8 percent in Q1), but exports of services decreased by 0.4 percent (-4.1 percent in Q1). As a result, the trade deficit widened slightly to £13.8 billion from £13.7 billion in Q1. 

From the production side, the services industries were the only positive contributor to output GDP growth, at 0.4 percentage points, while production and construction both fell and together detracted around 0.1 percentage points from growth.

The services industries increased by 0.5 percent following a 0.1 percent gain in Q1. The largest contribution came from distribution, hotels and restaurants (0.9 percent from -0.6 percent in Q1) with retail trade except of motor vehicles and motor cycles providing most of this increase. Also, upward contribution came from: Transport, storage and communications (1.2 percent from -0.8 percent); business services and finances (0.3 percent from 0.5 percent); and government and other services (0.4 percent, the same as in Q1). Industrial output contracted by 0.3 percent (0.1 percent in Q1): The greatest decrease was in manufacturing, the largest component of production (-0.6 percent from 0.3 percent), followed by electricity, gas, steam and air conditioning supply (-0.2 percent from -4.2 percent). These decreases were moderated by an increase in mining and quarrying (0.4 percent from 1.5 percent) and water supply and sewerage (0.1 percent from 1 percent). Construction output shrank by 1.3 percent, following a 1.1 percent gain the previous period.





Wednesday August 16 2017
UK Unemployment Rate Falls to New 42-Year Low
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

UK unemployment rate dropped to a fresh 42-year low of 4.4 percent in the three months to June of 2017, beating market expectations of 4.5 percent. The employment rate rose to an all-time high of 75.1 percent as the number of people in work rose by 125 thousand.

There were 1.48 million unemployed people, 57,000 fewer than for January to March 2017 and 157,000 fewer than for a year earlier. The unemployment rate was 4.4 percent, down from 4.9 percent for a year earlier and the lowest since 1975.

There were 32.07 million people in work, 125,000 more than for January to March 2017 and 338,000 more than for a year earlier. The employment rate was 75.1 percent, the highest since comparable records began in 1971. There were 883,000 people (not seasonally adjusted) in employment on “zero-hours contracts” in their main job, 20,000 fewer than for a year earlier.

There were 8.77 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), 64,000 fewer than for January to March 2017 and 90,000 fewer than for a year earlier. The inactivity rate was 21.3 percent, down from 21.6 percent for a year earlier and the lowest since comparable records began in 1971.

Latest estimates show that average weekly earnings in nominal terms (that is, not adjusted for price inflation) increased by 2.1 percent, both including and excluding bonuses, compared with a year earlier. In real terms (that is, adjusted for price inflation), average weekly earnings fell by 0.5 percent, both including and excluding bonuses, compared with a year earlier.


Tuesday August 15 2017
UK July Inflation Rate Unexpectedly Holds Steady at 2.6%
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

Consumer prices in the United Kingdom rose by 2.6 percent in the year to July 2017, the same pace as in June and missing market expectations of a 2.7 percent gain. Prices rose further for housing and utilities, food and non-alcoholic beverages, clothing and household goods, while cost of transport, recreation and culture, and restaurants and hotels went up at a slower pace.

Prices rose further for: Housing, water, electricity, gas and other fuels (2.2 percent from 2 percent in June); food and non-alcoholic beverages (2.6 percent from 2.3 percent); clothing and footwear (3.2 percent from 2.7 percent); furniture, household equipment and maintenance (3.8 percent from 3.2 percent); miscellaneous goods and services (1.9 percent from 1.7 percent); and health (2.7 percent from 2.4 percent). Meanwhile, cost increased at a slower pace for: Transport (3.1 percent from 3.7 percent in June), in particular fuels and lubricants (2 percent from 4.1 percent); recreation and culture (1.4 percent from 1.5 percent); and restaurants and hotels (3.1 percent from 3.3 percent).

The consumer prices index including owner occupiers’ housing costs (CPIH) also rose by 2.6 percent in July, the same pace as in June.

The annual core inflation rate, which excludes prices of energy, food, alcohol and tobacco, stood at 2.4 percent in July, unchanged from the previous month and below market consensus of 2.5 percent.

On a monthly basis, consumer prices fell 0.1 percent after showing no growth in June and missing market forecast of a flat reading. Prices dropped for clothing and footwear (-3 percent), fuels and lubricants (-1.3 percent), furniture, household equipment and maintenance (-1.2 percent), and recreation and culture (-0.2 percent).


Thursday August 10 2017
UK Trade Deficit Largest in 9 Months
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The UK’s deficit on trade in goods and services widened by £2.0 billion to £4.56 billion in June 2017 from a revised £2.52 billion in May. It was the biggest trade gap since September last year, as imports rose in the month by 3.3 percent to an all-time high of £53.95 billion, due to an increase in purchases of both goods and services. Exports dropped 0.7 percent to £49.39 billion.

Imports of goods and services rose by 3.3 percent to an all-time high of £53.95 billion in June 2017 from £52.24 billion in the previous month, mainly boosted by higher purchases of machinery and transport equipment, specifically mechanical machinery, aircraft and road vehicles. Among trading partners, imports of goods from the EU increased by 3.7 percent, mainly from Germany (3 percent), France (21.1 percent) and Spain (7 percent). Meanwhile, imports of goods from non-EU countries fell by 1 percent, due to lower purchases from Norway (-14.4 percent), Japan (-4.6 percent), South Korea (-10.3 percent) and Canada (-5.5 percent).

Exports of goods and services declined by 0.7 percent to £49.39 billion from £49.73 billion in May, as a decrease of 2.8 percent in sales of goods offset a 2.1 percent gain in exports of services. Exports of goods to non-EU countries slumped 7.9 percent, dragged by lower sales to the US (-20 percent), China (-18.6 percent), South Korea (-38.9 percent), Hong Kong (-7.5 percent) and Japan (-15.4 percent). By contrast, sales of goods to the EU advanced by 2.7 percent, mainly to Germany (5.3 percent), France (3.4 percent), the Netherlands (12.5 percent) and Italy (7.2 percent).

On the price front, goods export and import prices increased by 1.1 percent and 0.7 percent respectively.

In the second quarter of 2017, the trade deficit widened to £8.94 billion from £8.84 billion in the previous three-month period.