Introduction: It is UK GDP Day
Good morning, and welcome to our rolling protection of enterprise, the monetary markets, and the world economic system.
Rishi Sunak’s declare that “the economic system has turned a nook” is about to be examined.
New gross home product information, due at 7am, will present how the UK economic system fared in April.
It’s the final official healthcheck on UK financial progress earlier than the election, a day after we discovered that unemployment rose within the February-April quarter.
The Metropolis, on stability, count on no progress throughout the month, wherein unhealthy climate hit retail gross sales spending.
A Reuters ballot of economists discovered that the consensus forecast is for 0% change in GDP in April. However there’s a variety of predictions – from an optimistic +0.2% progress to a dismal -0.3%.
Even the highest of these forecasts can be a slowdown in contrast with March, when the UK grew by 0.4%, serving to the economic system exit recession.
Deutsche Financial institution’s chief UK economist, Sanjay Raja, is amongst these predicting stagnation in April, saying:
After a thumping finish to Q1-24, we count on the UK economic system to begin out flat as we enter Q2-24. UK GDP, we expect, will possible stall in April, weighed down by falls in each the companies and manufacturing sectors.
Dangers are skewed to a barely stronger print primarily based on our nowcasts.
Jefferies’ economists Modupe Adegbembo and Mohit Kumar count on progress of 0.2% in April, telling shoppers:
Development momentum stays sturdy within the UK, however month-to-month numbers are typically unstable and impacted by elements equivalent to climate. In April, the UK noticed one and a half occasions extra rain than standard which is prone to have dampened exercise in development and companies.
Busy day of information launch tomorrow by @ONS:• UK Commerce, April 2024• GDP month-to-month estimate, April 2024• Indices of Manufacturing and Companies, April 2024 pic.twitter.com/nxNqb4nXkM
— Andy Squibb (@squibbmeisteruk.bsky.social) (@SquibbmeisterUK) June 11, 2024
The agenda
7am BST: UK GDP report for April
7am BST: UK commerce report for April
7am BST: German CPI inflation report for Might
1.30pm BST: US CPI inflation report for Might
7pm BST: US Federal Reserve units US rates of interest
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Key occasions
April’s stagnation is, hopefully, a blip within the UK’s financial restoration from final 12 months’s quick, shallow recession, Metropolis economists say.
Philip Shaw of Investec says that poor climate was “no less than partly” the reason for the economic system stalling in April, including:
This follows a run of firmer outturns over Q1 this 12 months (Jan +0.3% m/m, Feb +0.2%, Mar +0.4%), leading to progress over the quarter of 0.6% because the economic system escaped a really delicate recession over H2 final 12 months.
We think about although that April’s numbers characterize a blip within the restoration story somewhat than the beginning of a brand new downturn and that exercise will crank up a gear or two over the approaching months because the particular detrimental elements disappear.
Tom Pugh, the chief economist at audit, tax and consulting agency RSM UK, suggests the drop in progress in April is “a bump on the upward path”, somewhat than a return to stagnation.
Pugh explains:
General, at the moment’s information reinforces our view that This fall final 12 months will characterize the nadir of a very painful interval of stagnation for the UK economic system.
However Q1 represented a turning level.
The weak point in April is only a small bump within the street. Rate of interest cuts are prone to come in the summertime, progress ought to proceed within the first half of this 12 months, and decide up additional after the summer time and into 2025. Certainly, we’re anticipating progress to common 0.3% q/q over the following 12 months, a a lot stronger efficiency than the final 5.
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The Conservative Occasion level out that the economic system did develop within the February-April quarter (as flagged earlier).
They’re additionally sticking to the PM’s declare the economic system is popping a nook (regardless of April’s stagnation resembling a cul-de-sac somewhat than a motorway).
A Conservative Occasion spokesman says:
“At this time’s figures present our economic system grew by 0.7% within the three months to April.
There may be extra to do, however the economic system is popping a nook and inflation is again right down to regular.
This election is alternative. Beneath the Conservatives, we will maintain the economic system rising with our clear plan to chop taxes on work, houses and pensions, or we will threat all that progress with Labour’s £2,094 of tax rises on each working household.”
Reminder: Sir Keir Starmer has rejected that tax rise declare as “absolute rubbish”:
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In one other signal of financial weak point, furnishings retailer DFS has issued its second revenue warning of the 12 months this morning.
DFS blamed a lot of the drop on delays to deliveries and better transport prices brought on by the Purple Sea disaster.
It instructed shareholders that the upholstery market is “very weak” and that since its final monetary ends in March:
…client demand within the upholstery sector has remained difficult and Purple Sea routing points have continued leading to delays to buyer deliveries and better freight prices.
DFS, which owns 118 retailers throughout the UK, mentioned it anticipated pre-tax income of £10m-£12m for the 12 months ending 30 June 2024, effectively down on the £20m-£25m predicted in March.
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The shortage of progress in April will make it arduous for Rishi Sunak to repeat his controversial declare that the UK economic system goes ‘gangbusters’.
Because the Monetary Occasions places it this morning:
In his marketing campaign appearances forward of the snap July 4 election, Sunak has ceaselessly cited Britain’s first-quarter progress of 0.6%, which ended a short technical recession, as an indication of the nation’s financial energy.
The prime minister has sought to influence voters that the UK is having fun with “gangbusters” progress — a phrase he ascribed to the ONS, however which the statistics company mentioned was not supposed as a remark in regards to the general state of the economic system.
The “gangbusters” line was utilized by the ONS’s chief economist in a briefing with journalists in Might, when the UK formally exited recession, and led to an investigation:
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Right here’s extra from shadow chancellor Rachel Reeves (who we heard from earlier) on the information that the economic system flatlined in April:
Reeves says:
“Rishi Sunak claims we’ve got turned a nook, however the economic system has stalled and there’s no progress.
“These figures expose the injury finished after 14 years of Conservative chaos.
“We at the moment are within the third week of this Common Election marketing campaign and in that point the Labour Occasion has set out its plan to develop the economic system by bringing again stability, unlocking personal sector funding and reforming our planning system.
“All of the Conservatives are providing is extra of the identical, with a determined want checklist of unfunded spending guarantees that may imply £4,800 extra on individuals’s mortgages. Rishi Sunak’s plan is a recipe for 5 extra years of Tory chaos.
“It’s time for change. The election on July 4 is an opportunity to vote Labour so we will finish the chaos, flip the web page and rebuild our economic system.”
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Economic system did develop during the last quarter
We actually mustn’t neglect that month-to-month GDP information may be very unstable.
Quarterly progress figures give a greater image; on that foundation, the economic system grew by 0.7% within the three months to April in contrast with the three months to January.
Simon French, economist at funding financial institution Panmure Gordon, has posted a chart displaying month-to-month GDP fluctuates, partly on account of ‘occasions’ equivalent to financial institution holidays, funerals, and the climate:
In case you plan on making an enormous play of “no GDP progress within the UK throughout April” cease and have a look at this collection. Simply extremely unstable and occasions (financial institution holidays, funerals, climate) inflicting materials volatility within the month-to-month collection both facet of zero. What the information does inform you is… pic.twitter.com/7Wva9b8uwQ
— Simon French (@Frencheconomics) June 12, 2024
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The Financial institution of England is unlikely to chop rates of interest at its subsequent assembly, on 20 June, regardless of the economic system flatlining in April, predicts Suren Thiru, ICAEW economics director:
“These figures recommend that the UK economic system stumbled noticeably in April as poor climate and the lagged influence of earlier rate of interest rises weakened key drivers of GDP, notably manufacturing and development.
“This lacklustre outturn ought to be the low level, with the uplift to individuals’s incomes from weaker inflation prone to drive output greater within the coming months, aided by the anticipated increase to client exercise from Euro 2024.
“The longer-term outlook might be closely influenced by the extent to which whoever wins the overall election is ready to sort out the long-standing structural points holding again our economic system, together with poor productiveness and excessive financial inactivity.
“Regardless of these disappointing GDP figures, a June rate of interest reduce seems to be unbelievable with the Financial institution of England prone to be slightly cautious of shifting coverage in the midst of a common election marketing campaign.”
The Metropolis agrees. This morning, the cash markets point out there’s juat a 9% likelihood of a price reduce subsequent week.
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One other blow to UK development as moist climate hit builders
April was one other poor month for the UK development sector, at the moment’s GDP report reveals.
Month-to-month development output is estimated to have decreased by 1.4% in April, its third consecutive month-to-month fall.
New work (eg: constructing new homes) shrank by 1.9%, whereas restore and upkeep dropped by 0.8%).
Unhealthy climate was clearly an element, as was the squeeze on the property sector from excessive rates of interest.
Clive Docwra, managing director of property and development consultancy McBains, says at the moment’s digures are “an additional blow for the trade”, which remained in recession in Q1 2024.
“A detailed to 2 p.c fall in new work throughout the board highlights the persevering with warning proven by traders being reluctant to decide to new initiatives whereas so many financial uncertainties stay. New work in personal housing specifically stays within the doldrums, seeing a fall of greater than 4 p.c.
“Many within the trade are crossing their fingers for a post-election increase, however at the moment’s figures present that whichever celebration types the following authorities has a job on its fingers to revive confidence and encourage progress.
Emma Fildes, founding father of the shopping for company Brick Weaver, factors out that the primary contributor to the month-to-month lower in development activtiy was “personal housing new work”:
A mixture of unhealthy climate & stretched funds meant for the third month in a row, development output was down, falling 1.4% in April. Seven out of the 9 of the development sectors noticed a lower in April 2024. The primary contributor to the month-to-month lower was personal housing… pic.twitter.com/ywzY1vDS1o
— Emma Fildes (@emmafildes) June 12, 2024
Michael Wynne, director of the sustainable housebuilder Q New Properties, says::
“Development output remains to be shrinking, and the trade as soon as once more has the undesirable distinction of being the weakest sector in a weak economic system.
“At this time’s information is disappointing on just about each degree. The contraction isn’t simply confined to sure subsectors of the development trade both, with seven out of 9 heading within the incorrect route.
“And whereas April’s poor climate – which delayed work on many constructing websites – may clarify the sharp drop in that one month, April was no anomaly. The much less unstable quarterly measure of output additionally reveals a 2.2% contraction – the sixth time in a row it has been caught in reverse.
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Up to date at 02.59 EDT
NIESR: UK economic system stays fragile
The subsequent authorities should concentrate on structural reforms, and methods to spice up private and non-private funding, to get the economic system rising sooner, says Hailey Low, affiliate economist on the Nationwide Institute of Financial and Social Analysis:
At this time’s subdued GDP figures sign that the UK stays fragile on its path to a sustained financial restoration.
Nevertheless, the broader perspective stays an economic system grappling with stagnation as low productiveness and excessive financial inactivity curtail progress potential. Structural reforms and insurance policies to spice up private and non-private funding ought to be the main focus for the following authorities, to enter a brand new period of upper financial progress.”
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Reeves: A lot for turning the nook
Rachel Reeves, Labour’s shadow chancellor, has posted that at the moment’s GDP information dents the prime minister’s declare that the economic system has turned a nook:
Rishi Sunak claims we’ve got turned a nook, however the economic system has stalled and there’s no progress.
The Conservatives have failed.
It’s time for change.
Rishi Sunak claims we’ve got turned a nook, however the economic system has stalled and there is no such thing as a progress. The Conservatives have failed. It’s time for change.
— Rachel Reeves (@RachelReevesMP) June 12, 2024
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Up to date at 03.04 EDT
TUC slams “worst authorities for progress in trendy occasions
TUC common secretary Paul Nowak says:
“Our economic system is slowing but once more. This has been the worst authorities for progress in trendy occasions – and dealing individuals have paid the worth.
“Actual wages are nonetheless value lower than 2008. Unemployment is rising on the quickest price within the G7. And financial inactivity is at report ranges.
“The Conservatives can spin all they like. However the final 14 years have been dismal for progress and residing requirements.
“They’ve turned Britain right into a stagnation nation.”
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The shortage of progress in April reveals the necessity to rebalance the UK economic system in favourof working individuals, argues Unite common secretary Sharon Graham:
“As soon as once more, the newest GDP figures present how distant we’re from the sort of excessive financial progress that politicians maintain promising is over the following hill. The arduous reality is there gained’t be any return to vital progress except we familiarize yourself with the UK’s collective bargaining and under-investment crises.
“It’s crunch time. If it desires to keep away from but extra managed decline the following authorities must make completely different decisions. Merely restoring collective bargaining to 1996 ranges would enhance GDP by 2.8%.”
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Digging into at the moment’s GDP report, we will see that the “data and communication” sector was the fastest-growing a part of the companies economic system in April.
It grew by 2.3% in April, pushed by progress of three.2% in pc programming, consultancy and associated actions, in addition to progress of 1.7% in telecommunications and 4.9% in publishing.
However on the different finish of the size, output in consumer-facing companies fell by 0.7% – pushed by a drop in exercise within the retail sector (as unhealthy climate stored individuals away from the excessive road).
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