UK Monthly Economic Review November 2013 (Based on October 2013 data releases)
Monthly headlines: UK economy grew at fastest rate since 2010, with all main sectors seeing growth UK jobs market strengthens, but real earnings continues to fall The task of rebalancing the UK economy remains difficult and significant headwinds remain
...with growth recorded across all sectors... Significantly, UK output increased in all four of the main sector groupings - agriculture, production, construction and services (see Chart 2). The service sector, which accounts for over three-quarters of UK economic output, was the key driver of growth in Q3 with output rising by 0.7%. This mirrors the Q3 2013 QES with services firms seeing improving balances. Construction, which accounts for around 6% of UK economic output, grew by 2.5%. Industrial output rose by 0.5% in Q3, in line with the findings from the latest QES. ...as the IMF upgrades its UK GDP forecasts IMF (International Monetary Fund) upgraded their forecast for UK GDP growth this year to 1.4%, from their previous estimate of 0.9% published in July. The IMF also raised its UK GDP forecast for 2014 to 1.9%, from 1.5%. The BCC’s latest UK GDP forecast for 2013 of 1.3% is slightly below the IMF's latest forecast (1.4%). However, the BCC expects slightly stronger growth in 2014 and 2015 (see Table 1). Overall, our view that the recent improvement in the UK economy will continue is supported by the latest upward revisions to the IMF's UK growth forecasts.
04/11/2013
Chart: 1 Real GDP and Domestic Sales
1.5
60 40
0.5
-1.5
0
Balance %
2013 Q3
2013 Q1
2012 Q3
2012 Q1
2011 Q3
2011 Q1
2010 Q3
2010 Q1
2009 Q3
-1.0
2009 Q1
-0.5
20 2008 Q3
0.0 2008 Q1
Quarterly GDP Growth %
1.0
-20 Quarterly GDP growth Domestic sales (Manufacturing) Domestic sales (Services)
-2.0 -2.5
-40
-3.0
-60 Sources: BCC, ONS
3.0
Chart 2: UK GDP Q3 2013, by Sector
2.5 Quarterly change %
GDP growth reaches three year high... The first official estimate of economic output (GDP) put UK GDP growth at 0.8% in the third quarter of 2013, the fastest rise since Q2 2010 (see Chart 1). This mirrors the Q3 2013 BCC Quarterly Economic Survey (QES) which recorded a strengthening economic recovery with most UK balances improving. Although the level of economic output in the UK is still 2.5% below its peak in Q1 2008, the latest economic growth figures support our view that the UK economic recovery is gathering momentum.
2.0 1.5 1.0 0.5 0.0 Agriculture
Production
Construction
Services Source: ONS
Table 1: BCC and IMF GDP Forecasts
BCC (%)
IMF (%)
Difference (%)
2013
1.3
1.4
-0.1
2014
2.2
1.9
+0.3
2015
2.5
2.3
+0.2
UK Economic Review
Sources: BCC, IMF
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04/11/2013
20
29.4
10
29.2
0
29.0
-10
28.8
2013 Q3
2013 Q1
2012 Q3
2012 Q1
2011 Q3
2011 Q1
-40 2010 Q3
28.2 2010 Q1
-30 2009 Q3
28.4 2009 Q1
-20
2008 Q3
28.6
Balance %
30
29.6
2008 Q1
Employment, millions
40
29.8
Sources: BCC, ONS
Chart 4: Unemployment Rate, by UK Region and Nation
11 10 9 8 7 6 5
Sources: BCC, ONS
Chart 5: UK Inflation
50
CPI inflation (LHS) Expectations to increase prices (manufacturing) Expectations to increase prices (services)
UK Economic Review
2013 Q3
-10 2013 Q1
0 2012 Q3
0 2012 Q1
1 2011 Q3
10
2011 Q1
2
2010 Q3
20
2010 Q1
3
2009 Q3
30
2009 Q1
4
2008 Q3
40
2008 Q1
5
Balance %
6
2007 Q3
...and real earnings continue to decline CPI inflation was unchanged in September at 2.7%. Although we still expect inflation to fall gradually this year, the pace appears to be slower than we had anticipated. Furthermore, with the Q3 2013 QES revealing that intentions among firms to raise prices is growing (see Chart 5) and large increases in utility prices on the way, higher inflation remains a risk. With inflation still well above the Bank of England's 2% target and earnings growth declining from 1.0% some to 0.8% in the three months to August 2013, the squeeze on household budgets is increasing and remains a risk to the UK economic recovery.
30.0
Employment QES Employment Balance (manufacturing) QES Employment Balance (services)
Unemployment rate %
...but there are local disparities‌ Although the UK labour market picture remains positive, there are notable disparities between the UK's regions and nations. Seven out of the twelve regions and nations in the UK currently have an + unemployment rate that is above the UK average of 7.7% (see Chart 4). In the three months to August 2013, the North East of England recorded the highest unemployment rate (10.3%), followed by the West Midlands (9.4%) and Yorkshire & the Humber (8.8%). In contrast, the East of England (5.9%) has the lowest unemployment rate in the UK, followed by the South East (6.0%) and the South West (6.3%).
Chart 3: UK Employment
Annual CPI inflation %
The UK jobs market continues to improve‌ The latest jobs data provides further evidence that the UK labour market is strengthening. In the three months to August 2013, the number of people in work rose by 155,000 to a record high of 29.87 million. The number of people who are unemployed fell by 18,000 over the same period. The Q3 2013 QES also points to a strengthening jobs market with a marked improvement in the employment balances (see Chart 3). However, the number of people who were working part-time because they could not find full-time work rose to 1.45 million, the highest figure since records began in 1992.
Sources: BCC, ONS
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2 1
-3 -4 -5
Chart 7: UK Export Sales 30
10
3Q13
1Q13
3Q12
1Q12
3Q11
1Q11
3Q10
1Q10
3Q09
Source: BCC
Chart 8: IMF GDP Forecasts for 2013
10 8 6 4 2
Jul-13
Oct-13
Italy
Spain
Euro area
France
Germany
-4
UK
Russia
USA
Japan
World
-2
India
0 China
...even as the global economic outlook weakens The International Monetary Fund (IMF) has cut its forecast for global GDP growth. The IMF now expects global growth of 2.9% this year, down from July's estimate on 3.1% (see Chart 8). Despite an improvement in growth in advanced economies such as the UK (see Table 1), the IMF thinks that slower growth in emerging economies such as China and India, could hold back global growth. The continued debt crisis in the US is also a key risk to global growth. The Eurozone, the UK's major trading partner, is still expected to contract in 2013, but at a slightly smaller rate.
Export sales (services) Export sales (manufacturing)
-30
Annual change %
towards exports.
1Q09
-20
3Q08
services provides further evidence of the potential of
1Q08
-10
3Q07
0 1Q07
Balance %
20
of the export balances in both manufacturing and British businesses to rebalance the UK economy
Source: ONS
40
Although the export balances for the service sector fell
pre-recession levels in 2007 (see Chart 7). The strength
2010 AUG 2010 OCT 2010 DEC 2011 FEB 2011 APR 2011 JUN 2011 AUG 2011 OCT 2011 DEC 2012 FEB 2012 APR 2012 JUN 2012 AUG 2012 OCT 2012 DEC 2013 FEB 2013 APR 2013 JUN 2013 AUG
-2
national export balances for manufacturing firms.
sectors, the export balances are also higher than their
0 -1
...but there is hope of a future improvement… The Q3 2013 QES recorded an improvement in the
slightly, they remain at historically high levels. In both
Chart 6: UK Trade Balance
3
£ billion
UK’s trade position remains weak... The UK's trade deficit improved slightly in August, falling from £3.4 billion to £3.3 billion (see Chart 6). A breakdown of the data showed that exports of goods to countries outside the EU increased by £0.7 billion, more than offsetting a £0.4 billion fall in exports to countries within the EU. However, although some progress has been made, the pace of rebalancing the UK economy towards exports remains slow. In the three months to August 2013, exports were 1.0% lower compared to the three preceding months, while imports rose by 0.5% to their highest level on record.
Source: IMF
Bottom line: October’s data release provides further evidence that the upturn in the UK economy is gathering momentum. However, the UK is still lagging behind countries such as the US and Germany which have recovered the output lost during their own economic downturns. Therefore more must be done to secure the recovery, including better access to finance and export support. For more information please contact: Suren Thiru, UK Economic Advisor. Email: s.thiru@britishchambers.org.uk. Tel: 020 7654 5801
. 04/11/2013 For more
Review PAGE 3 OF 4 information please contact: Suren Thiru, UK UKEconomic Economic Advisor. Email: s.thiru@britishchambers.org.uk
Chart 9: UK 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 (Bank of England)**
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
No change May-13
Jun-13
Improving Jul-13
Labour market Employment (ONS) Unemployment (ONS) Claimant count (ONS) Earnings (ONS) Economic Activity (ONS) Financial
FTSE100 (Bank of England) Wholesale funding (Bank of England) Retail funding (Bank of England) Oil prices (Bank of England) Gold prices (Bank of England)
Government
10 year Government bonds (Bloomberg) Public sector net borrowing (ONS) Public sector net debt stock (ONS) Tax receipts (ONS) Current Budget (ONS)
External
UK trade balance (ONS) Exchange rate (Bank of England) Eurozone GDP (Eurostat)**** Export deliveries (BCC)*** Export orders (BCC)***
*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. **Annual changes. ***Quarterly changes. ****Latest figures are estimates. 04/11/2013
UK Economic Review
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