Monthly Economic Review September 2015 (Based on August 2015 data releases)
Monthly headlines: UK economic growth in Q2 unrevised, as the trade deficit narrows and investment rises. UK unemployment rises again, but earnings continue to outstrip inflation. US growth is revised up sharply, but China weighing heavily on the global outlook. .UK GDP growth in Q2 unrevised at 0.7%...
06/09/2015
104
Q1=2008
102 100 98 96 94
Real GDP GDP per head
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
92
Source: ONS Second GDP estimate, Q2 2015
Chart 2: UK Trade Balance 0 -2 -4 -6 -8 -10 -12 -14 -16 -18
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
2006 Q4
2006 Q2
2005 Q4
2005 Q2
-20
Source: ONS Second GDP estimate, Q2 2015
Chart 3: Changes in UK Job Vacancies 800 700 600 500 400 300 200 100 0
Apr-Jun 2001 Oct-Dec 2001 Apr-Jun 2002 Oct-Dec 2002 Apr-Jun 2003 Oct-Dec 2003 Apr-Jun 2004 Oct-Dec 2004 Apr-Jun 2005 Oct-Dec 2005 Apr-Jun 2006 Oct-Dec 2006 Apr-Jun 2007 Oct-Dec 2007 Apr-Jun2008 Oct-Dec 2008 Apr-Jun 2009 Oct-Dec 2009 Apr-Jun 2010 Oct-Dec 2010 Apr-Jun 2011 Oct-Dec 2011 Apr-Jun 2012 Oct-Dec 2012 Apr-Jun 2013 Oct-Dec 2013 Apr-Jun 2014 Oct-Dec 2014 Apr-Jun 2015
...and while the UK jobs market weakens... In the three months to July 2015, UK unemployment rose by 25,000 compared with the previous three months. The number of people in employment fell by 63,000 over the same period. There were 735,000 job vacancies in the three months to July 2015, the second highest number since records began in 2001 (see Chart 3). This mirrors the Q2 2015 Quarter Economic Survey where recruitment difficulties in the manufacturing sector reached a record high. However, despite this, the UK’s labour market remains a source of strength for the UK economy.
106
Billions £
...with growth better balanced in the quarter... The UK's trade deficit narrowed from £13.4 billion in Q1 2015 to £9.1 billion in Q2 2015, the lowest deficit since Q2 2013 (see Chart 2). This was driven by a 3.9% rise in exports in Q2, almost seven times the 0.6% increase in imports over the same period. As a consequence, trade boosted GDP by one percentage point in Q2, its biggest contribution since Q4 2011 and is in marked contrast to the previous quarter when net trade was a drag on growth. Business investment rose by 2.9% compared with the Q1 2015, the biggest rise since Q2 2014.
Chart 1: UK Real GDP vs GDP per head
000's
The second official estimate for Q2 2015 growth in UK GDP was unrevised at 0.7%, compared to the 0.4% rise recorded in Q1. In annual terms, the UK economy grew by 2.6% in Q2, unrevised from the previous estimate. UK economic output is now over 5% above its Q1 2008 pre-recession peak. However, GDP per head, a key indicator of living standards, remains just below its pre-recession peak, despite rising by 0.5% in Q2 2015 (see Chart 1). Overall, the latest GDP figures mirror our view that the UK economy is expanding at a solid rate.
BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk
Source: ONS Retail Sales, December 2013 Source: ONS UK Labour Market Indices, July 2015
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06/09/2015
4 3
%
2 1
Apr-Jun 2015
Jan-Mar 2015
Jul-Sep 2014
Oct-Dec 2014
Apr-Jun 2014
Jan-Mar 2014
Jul-Sep 2013
Oct-Dec 2013
Apr-Jun 2013
Jan-Mar 2013
Jul-Sep 2012
-3
Oct-Dec 2012
Apr-Jun 2012
Jan-Mar 2012
Jul-Sep 2011
Oct-Dec 2011
Apr-Jun 2011
Jan-Mar 2011
Jul-Sep 2010
Oct-Dec 2010
Apr-Jun 2010
Jan-Mar 2010
Jul-Sep 2009
Oct-Dec 2009
-2
Apr-Jun 2009
0 -1
Real earnings growth Annual earnings growth CPI inflation
-4
Source: ONS Labour Market Statistics, August 2015
Chart 5: Retail Sales 8 6 4 2
Jun-15
Dec-14
Jun-14
Dec-13
Jun-13
Dec-12
Jun-12
Dec-11
Jun-11
Jun-10
-2
Dec-10
0
-4 Source: ONS Retail Sales, July 2015
Chart 6: UK Public Sector Net Borrowing 8 6 4
2015 Jul
2014 Jul
2013 Jul
2012 Jul
2011 Jul
2010 Jul
2009 Jul
2008 Jul
-2
2007 Jul
0
2006 Jul
2
2005 Jul
...but cutting the deficit remains a challenge. Public sector net borrowing, excluding public sector banks, recorded a surplus of £1.3 billion in July 2015, the first July surplus since 2012 (see Chart 6). July tends to be a strong month for the public finances, due to the timing of corporation tax and selfassessment payments. The improvement in July 2015 was largely due to higher tax receipts, which was 4.5% higher than last year's figure. Despite the progress in reducing the UK’s fiscal deficit we have some seen in recent months, public sector net debt, at 80.8% of GDP in July 2015, remains more than double pre-crisis levels.
5
Annual change %
...will help to support UK growth in Q3... Retail sales rose by 0.1% in July. The biggest growth in sales were in electrical goods and furniture, both of which were up almost 20% on the month and suggests that the greater spending power enjoyed by + consumers in recent months (see Chart 4) is encouraging shoppers to purchase big ticket items. In annual terms, retail sales increased by 4.2%, the 28th consecutive month of growth (see Chart 5). Average store prices fell by 3.0% in July 2015 compared with July 2014. Overall, the latest retail sales figures indicate that the pace of growth in the UK is likely to remain strong in Q3.
Chart 4: Real Earnings Growth 6
Billions £
...strong real wage growth... CPI inflation rose from 0.0% in June to 0.1% in July. A smaller fall in clothing prices on the month, compared with a year ago, was the main contributor to the slight rise in inflation. However, despite this increase, the UK remains in a period of very low inflation, and with annual earnings growth, excluding bonuses, rising by 2.8% in the three months to June 2015, real earnings continue to rise at a solid pace (see Chart 4).With two-thirds of UK GDP driven by consumer spending, the rise in real earnings and therefore consumer's spending power will continue to support growth.
-4 -6 -8
BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk
Source: ONS Public Sector Finances, July 2015
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…China remains a major concern. Despite cutting interest rates and devaluing their currency to make their exports more competitive, concerns over the outlook for the Chinese economy persist with stock prices falling by 16% over the past month. China’s standing as the world's secondbiggest economy (see Table 1) and accounting for around a quarter global GDP growth means that uncertainty over its outlook is starting to weigh on the global economy. Global stock prices dropped over the past month with UK stock prices declining by 10%, amid fears over a prolonged slowdown in China.
0.8
0.4 0.2
2015Q2
2015Q1
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
-0.2
2012Q3
0
2012Q2
Quarterly Change %
0.6
-0.4
Eurozone
-0.6
UK Source: Eurostat
Chart 8: UK vs US GDP Growth 6.0 4.0 2.0
2015Q2
2014Q4
2014Q2
2013Q4
2013Q2
2012Q4
2012Q2
2011Q4
2011Q2
2010Q4
2010Q2
2009Q4
2009Q2
2008Q4
2008Q2
2007Q4
2007Q2
2006Q4
2006Q2
-2.0
2005Q4
0.0
2005Q2
...and US growth is revised up sharply... The second estimate of US GDP revealed that the US economy grew at an annualised rate of 3.7% in Q2 2015 (see Chart 8), up from the first estimate of 2.3%, and more than six times the growth of 0.6% recorded in Q1. The upgrade partly reflected a 3.2% rise in business investment in Q2, up from an earlier estimate of a 0.6% decline. Consumer spending, which accounts for more than two-thirds of US GDP, was upwardly revised to 3.1%, from the previous estimate of 2.9%. A strong jobs market and weak inflation, is helping to support consumer spending in the US.
Chart 7: UK vs Eurozone GDP growth 1
Annual change %
While the Eurozone continues to grow... The Eurozone economy grew by 0.3% in Q2 2015. Although this was down slightly from the growth of 0.4% in the previous quarter, it was still stronger than the average growth of 0.2% per quarter in 2014 (see Chart 7). In annual terms, the Eurozone economy grew by 1.2% in Q2. Germany's economy, the biggest in the Eurozone, grew by 0.4% in Q1 2015, up from 0.3% growth in Q1. Economic growth in Greece picked up sharply, rising by 0.8% in Q2, after recording zero growth in the previous quarter. In contrast, France's economy did not grow at all in Q2, compared to the growth of 0.7% recorded in Q1.
-4.0
US
-6.0
UK
-8.0 -10.0
Sources: ONS, BEA
Table 1: Ten Largest Economies (by GDP, current prices) 2014 USA
$17,419
China
$10,380
Japan
$4,616
Germany
$3,860
UK
$2,945
France
$2,847
Brazil
$2,353
Italy
$2,148
India Russia
$2,050 $1,857
Source: IMF
Bottom line: Last month’s data releases confirm that the UK economy continues to perform well. However, global uncertainties, intensified by the current state of play in China, reinforces the case for keeping UK interest rates at their current level until well into next year. For more information please contact: Suren Thiru, UK Economic Advisor. Email: s.thiru@britishchambers.org.uk. Tel: 020 7654 5801 06/09/2015
BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk
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Economic summary chart Deteriorating Sector Household
Indictors (sources) Retail Sales (ONS) Consumer Confidence (GfK NOP) House Prices (Halifax) New car sales (SMMT)** Mortgage approvals (Bank of England)
Business
Business confidence (BCC)*** Business lending (Bank of England) Service sector output (ONS) Production output (ONS) Investment intentions (BCC)**
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
No change Jun-15
Jul-15
Improving Aug-15
Sep-15
Labour market Employment (ONS) Unemployment (ONS) Claimant count (ONS) Earnings (ONS) Economic Inactivity (ONS) Government
10 year Government bonds (Bloomberg) Public sector net borrowing (ONS)** Public sector net debt % of GDP (ONS)** Tax receipts (ONS)** Current Budget Deficit (ONS)**
External
UK trade balance (ONS) Exchange rate (Bank of England) Export Sales (BCC)*** Export orders (BCC)***
Global
US GDP (BEA)**** US unemployment (BLS) Eurozone GDP (Eurostat)**** Eurozone Unemployment (Eurostat) China GDP (Oxford Economics)
*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. 06/09/2015
BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk
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