The FTSE 100 benefited from anxiety over the Middle East today, as well as relief that the UK economy is growing, reports Susannah Streeter, head of money and markets at Hargreaves Lansdown
“The FTSE has been lifted higher by the fresh breeze in the sails of the UK economy. It’s still on a very slow course of growth but, with slender green shoots appearing, it’s benefiting stocks reliant on the financial health of consumers and companies. With growth not shooting the lights out, and inflationary pressures easing, there is still plenty of optimism around about the prospect of interest rate cuts coming in the summer, which has given the FTSE 100 an extra surge of power.
Gold’s safe-haven credentials glimmered even brighter amid concerns about an escalation of conflict in the Middle East, while Brent Crude jumped by more than 2% to hover around $92 a barrel. Investors appeared rattled in early afternoon trade over warnings about an imminent attack by Iran on Israel, but the index gained back ground to edge to a record high at the close.
The FTSE 100 has clearly regained its mojo as the defensive nature of the index comes to the fore. A large handful of FTSE 100 listed companies, which breached record levels earlier in the month, have been climbing back close to those highs, including Rolls Royce and BAE Systems. Aerospace stocks have been pushed higher by heightened geo-political tensions and post-pandemic demand. With violence having widened in the Middle East, and Ukraine appealing for more weapons to repel Russia, there is an expectation that military budgets will keep expanding. This has been reinforced by defence chiefs in Nordic countries, and the UK, calling for better military preparedness over the next decade.”
Closing post
With hopes of a record FTSE 100 high dashed until at least Monday, it’s time to wrap up.
Here’s today’s main stories:
Have a lovely weekend; we’ll be back next week. GW
FTSE 100 at highest closing level in over a year
The UK’s blue-chip share index has failed to end the day at a new record closing high.
The FTSE 100 index has closed for the night at 7995 points, up 71 points or 0.9%.
That’s its highest closing high since February 2023, when the index hit its record high of 8,047 points (which we NEARLY hit around lunchtime).
Spirits in the City were lifted by the news that the economy continued to grow in February, with GDP up 0.1%.
This has cemented hopes that the UK will officially exit recession by growing over the first quarter of 2024, with economic institute NIESR today predicting the recession was in the ‘rearview miror’.
Jason Hollands, managing director of online investment platform Bestinvest, says improving optimism about the domestic economy helped lift stocks.
“Today’s confirmation that UK GDP expanded by 0.1% in February, following on from growth of 0.3% in January, will be seen by many as the key reason for the latest market moves as the data signals that the technical recession that the UK entered at the end of last year is almost certainly over.
But other, less cheery, factors are also lifting the FTSE 100, Hollands adds:
Heightened tensions in the Middle East with the risk of a regional war between Iran and Israel breaking out imminently, have propelled both oil and precious metal prices higher. Among the best performers in the FTSE 100 today are mining and energy stocks. As at midday, Fresnillo – the world’s second largest gold miner and largest silver producer – was the best performing FTSE 100 constituent – rising c5%, followed by major copper producer Antofagasta and Anglo American, the world’s largest platinum producer.
Energy is a major sector on the UK market, representing 12.8% of the FTSE 100, and both BP and Shell are on the rise against a backdrop of Brent Crude oil prices exceeding $90 a barrel.
Shares in BP gained 3.6% today, after Reuters reported that Abu Dhabi’s state-owned oil company had considered making a bid.
Housebuilders were also among the top risers, after JP Morgan lifted its rating on several construction firms.
Updated
Credit ratings agency Fitch has downgraded Thames Water’s parent company, Kemble, into ‘restricrive default’, a week after it missed an interest payment.
Fitch has announced that it has downgraded Kemble Water Finance Limited’s (the holding company of Thames Water Utilities Limited)) Long-Term Issuer Default Rating (IDR) to ‘Restricted Default’ (RD) from ‘C’.
Earlier this week Fitch lowered Kemble to C, which is one notch above default, while it waited to see if it made the missed interest payment on £149.8m.
Fitch adds that the rating could yet be lowered further, to D, in the absence of an agreement with lenders and bondholders, leading to bankruptcy filings or other procedures.
Updated
Brent crude hits $92
Oil has hit its highest level since last October tonight, amid fears of further Middle East tensions.
Brent crude has hit $92 per barrel for the first time since last October, as Israel braces for the possibility of an attack by Iran,
John Kirby, the White House national security spokesperson, has told reporters that the prospect of an Iranian attack on Israel is “still a viable threat”..
Unless stocks manage a late rally in London, we won’t get any record highs today after all.
The FTSE 100 is still having a strong day, but has slipped back to 7993 points, up 70 points today (+0.9%). That wouldn’t be enough for a closing high.
The chair of parliament’s Treasury Committee, Dame Harriett Baldwin, has welcomed Ben Bernanke’s review into the Bank of England:
Baldwin adds:
We asked the Chair of Court in June last year to commission a review of what had gone wrong with the Bank’s inflation forecasting.
We look forward to scrutinising Dr Bernanke’s review when he gives evidence to our Committee in May.”
Over in the US, consumer confidence has weakened as people remain anxious about inflation.
The University of Michigan’s consumer sentiment index has dropped this month, to
77.9, down from 79.4 in March.
Those surveyed grew more pessimistic about current economic conditions, and a little less optimistic about economic expectations.
Surveys of Consumers Director Joanne Hsu says:
Sentiment moved sideways for the fourth straight month, as consumers perceived few meaningful developments in the economy.
Since January, sentiment has remained remarkably steady within a very narrow 2.5 index point range, well under the 5 points necessary for a statistically significant difference in readings. Consumers perceived little change in the state of the economy since the start of the new year.
Expectations over personal finances, business conditions, and labor markets have all been stable over the last four months. However, a slight uptick in inflation expectations in April reflects some frustration that the inflation slowdown may have stalled.
Overall, consumers are reserving judgment about the economy in light of the upcoming election, which, in the view of many consumers, could have a substantial impact on the trajectory of the economy.
Per the just-released University of Michigan Survey, both one and five-to-ten year US inflation expectations rose to the highest this year (at 3.1% and 3.0%, respectively), while consumer sentiment fell (from 79.4 to 77.9). All three readings were worse than the consensus…
— Mohamed A. El-Erian (@elerianm) April 12, 2024
Next’s CEO, Lord Simon Wolfson, has been rewarded for the retailer’s good 2023 with a bumper pay rise.
Wolfson’s total pay rose to £4.5m for the 2023-24 financial year, up from £2.5m the year before, Next’s annual report shows. It looks to be his best year’s pay since 2016.
That included a salary of £908,000 (up from £865,000), an annual bonus of £1.3m (up from £700,000), and long-term incentive plan payouts of £2.07m, up from £704,000).
Chairman Michael Roney says the last financial year was a very good year for Next, which “materially outperformed” expectations.
Pre-tax profits rose 5% to £918m.
Updated
Wall Street has opened in the red.
The Dow Jones industrial average has dropped by 229 points, or 0.6%, in early trading to 38,229 points.
The broader S&P 500 is also down 0.6%, while the tech-focused Nasdaq is 0.8% lower.
The repricing of interest rate cut expectations continues to weigh on shares. But so do some mixed results from US banks; JP Morgan shares are down 3.6%.
Over in Germany, inflation has sunk to its lowest level in almost three years.
The annual inflation rate in Germany dipped to 2.2% in March 2024, statistics body Destatis reported this morning.
That’s down from 2.5% in February 2024, and 2.9% in January 2024, and the lowest reading since May 2021.
Die #Inflationsrate in Deutschland lag im März 2024 bei +2,2 %. Damit hat sie sich erneut abgeschwächt. Energieprodukte verbilligten sich um 2,7 % gegenüber März 2023, die #Preise bei Nahrungsmitteln sanken um 0,7 %. Mehr dazu in unserer Pressemitteilung: https://t.co/jcKzOXsdaj pic.twitter.com/cCTbAbsyID
— Statistisches Bundesamt (@destatis) April 12, 2024
Having approached the brink of a new alltime high this afternoon, the FTSE 100 has turned tail and headed south.
The blue-chip index has now dropped back to 7,999 points, having earlier hit 8,044 – just three points off the record.
Miners and oil companies are rallying, as are UK housebuilders after a positive research note from JP Morgan.
But… the higher oil price is hurting the travel sector, with airlines easyJet (-4.9%) and IAG (-3.1%) leading the FTSE 100 fallers.
In the tech world, Apple has lost a bid to throw out UK lawsuit over fees for its App Store
A judge ruled today that Apple must face allegations it charged more than 1,500 UK-based developers unfair commission fees on purchases of apps and other content.
Sean Ennis, a competition law professor and economist, is spearheading the case, which was filed at London’s Competition Appeal Tribunal (CAT) last year and alleges Apple charged developers unfair commissions of up to 30%.
Analysis: Bernanke gets strict with Bank of England over handling of inflation crisis
Ben Bernanke’s report into the Bank of England’s forecasting is measured but still quietly devastating, our economics editor Larry Elliott writes:
The Bank of England has got markedly worse at forecasting the economy in recent years. Its economic model is faulty. Its systems are out of date. It has been reluctant to admit past mistakes. Communication with the public could be better.
If Threadneedle Street thought it was going to get an easy ride when it called in the former head of the US central bank, Ben Bernanke, to conduct a review of how decisions on interest rates have been made in recent years, it was mistaken.
More here:
JP Morgan Chase, the largest US bank, has reported better than expected first quarter earnings bolstered by the higher interest rate environment and its acquisition of First Republic, a smaller regional lender, last year.
The US bank reported first quarter revenues of $42.55bn, beating analysts expectations of $41.85bn, and earnings per share of $4.44 against forecasts of $4.11 helped by lower provisions for credit losses.
First quarter net profit rose 6 % to $13.42bn against $12.62bn in the same period of 2023.
Analysts have said that JP Morgan’s strong net interest income figures - broadly the difference between what it pays on deposits and what it earns on loans -were not likely to be sustainable in a lower interest environment as US Federal Reserve starts cutting rates later this year.
This week it emerged that US inflation rose by more than expected in March which could force the US Federal Reserve to delay cutting interest rates and the market has priced in fewer cuts to rates than had previously been expected.
Jamie Dimon, chairman and chief executive of JP Morgan, said earlier this week in his annual letter to shareholders that JP Morgan was ready for a “very broad range” of interest rates from 2% to 8%.
Dimon said on Friday that there seems to be “a large number of persistent inflationary pressures, which may likely continue.” although “many economic indicators continue to be favorable.“
He added:
“However, looking ahead, we remain alert to a number of significant uncertain forces. First, the global landscape is unsettling – terrible wars and violence continue to cause suffering, and geopolitical tensions are growing.”
Back in the City, the FTSE 100 index is getting pretty close to a new alltime high.
The share index is now up 116 points, or 1.5%, at 8040 points – only a handful away from the record peak of 8,047 set over a year ago….
Ben Bernanke has resisted recommending that the Bank of England adopt the so-called “dot plot” which he introduced at the Federal Reserve when he ran the US central bank.
The dot plot outlines where each policymaker thinks interest rates will be over time, to communicate their thinking to the markets.
There was speculation that Bernanke could propose they were brought in by the BoE, as part of today’s review of the Bank’s processes.
But in the event, he decided that such a change would be “highly consequential”, so this issue should be left to “future deliberations”
Paul Dales, chief UK economist at Capital Economics, thinks this is “a real shame”.
Dales explains:
Projecting interest rates would be the clearest way for the Bank to communicate what it thinks is required to hit the 2% inflation target.
Bernanke's recommendations to improve the Bank of England
Ben Bernanke’s review makes 12 recommendations to improve the Bank of England’s forecasting and related processes.
Some of them focus on software, including either improving or replacing the BoE’s baseline economic model, known as COMPASS.
Others look at ways to improving the bank’s forecasts, and the way they are presented in the monetary policy report (MPR).
Here’s the list:
The ongoing updating and modernisation of software to manage and manipulate data should be continued with high priority and as rapidly as feasible.
Model maintenance and development should be an ongoing priority, supported by a significant increase in dedicated staff time and adequate resources, including specialised software as needed.
Over the longer term, the Bank should undertake a thorough review and updating of its forecasting framework, including replacing or, at a minimum, thoroughly revamping COMPASS.
Revamp the Bank’s forecasting framework, including a rich representation of the monetary transmission mechanism, empirically based modelling of inflation expectations, models of wage-price determination that allow gradual adjustment and causation from prices to wages as well as from wages to prices, detailed models of key components of the UK economy, and a greater focus on the supply side of the economy.
Encourage Bank staff to highlight significant forecast errors and their sources
The Bank should review its personnel policies to determine if existing staff could be deployed in ways that improve the forecasting infrastructure and forecast quality.
The monetary policy committee’s central forecast should be regularly augmented by alternative scenarios, with the specific scenarios ideally decided upon at an early stage of each forecast round by the MPC and staff.
Publish selected alternative scenarios in the MPR, along with the central forecast, to help the public better understand the reasons for the policy choice, including risk management considerations.
The MPC should de-emphasise the central forecast based on the market rate path in its communications and be exceptionally clear in warning about situations in which it judges the standard conditioning assumptions to be inconsistent with its view of the outlook.
The MPC should also replace or cut back the detailed quantitative discussion of economic conditions in the Monetary Policy Summary in favour of a shorter and more qualitative description, following the practice of most peer central banks.
The fan charts published in the MPR should be eliminated
Extra resources should be dedicated to implement the changes being recommended
Bank of England urged to revamp its forecasting
Newsflash: An eagerly awaited review of the Bank of England’s forecasting methods, conducted by former top US central banker Ben Bernanke, is out… and it urges the UK central bank to fix its forecasts and technology.
The Bernanke review has been billed as an opportunity for a ‘once in a generation’ overhaul of the BoE’s forecasting.
And it has found that the Bank has used out-of-date methods and failed to communicate clearly with the public.
This undermined the BoE’s record of forecasting inflation and the path of interest rates, according to the review.
My colleague Phillip Inman reports:
In a bruising assessment, the former US Federal Reserve boss Ben Bernanke said the Bank spent much of its time attempting to justify its poor judgment rather than admit its failures and change course.
Accusing the Bank of appearing to “at times suffer from excessive incrementalism”, he said policymakers had raised rates too slowly over the past two years when it was clear inflation was already rising beyond normal levels.
After an eight-month review, Bernanke says rather damningly that “the accuracy of the BoE’s forecasts has deteriorated significantly in the past few years”. But he also points out that other central banks have had similar problems.
He also advises the BoE should scrap its fan charts, which it uses to show the likelyhood of a range of outcomes, in favour of a more qualitative assessment of risks – using alternative scenarios to show how the bank might act if economic conditions play out unexpectedly.
Bernanke’s review also found that “the most serious problems” were the deficiencies of the Bank’s forecasting infrastructure.
These are the tools the staff uses to produce the quarterly forecast and supporting analyses.
“Some key software is out of date and lacks important functionality,” the review says.
Updated
UK recession in the rearview mirror, says NIESR
The UK recession is now in the “rearview mirror”, says forecasters at the National Institute of Economic and Social Research, who predict GDP will grow by 0.4% in the first quarter of this year.
This return to growth would mean that the recession, which began in the second half of last year, would be over.
Following this morning’s news that the economy grew by 0.1% in February, and by 0.3% in January, NEISR sees growth continuing.
It says:
We forecast GDP to grow by 0.4 per cent in the first quarter of 2024. Our early forecast for the second quarter of this year sees GDP growing by 0.3 per cent.
While exiting from the shallow recession in the second half of 2023 is welcoming, these forecasts remain broadly consistent with the longer-term trend of low, but stable economic growth in the United Kingdom.
The rally on the London stock market today is partly driven by miners, as commodity prices strengthen.
In London, the zinc price gained 3% this morning, with copper up 2%, while aluminium hit a two-year high in Shanghai.
This has helped lift shares in mining giant Anglo American (+4%), with Chilean copper producer Angofagasta up 4.5%, and Glencore 3.7% higher.
Pound hits five-month low vs US dollar
The pound has weakened to its lowest level against the US dollar so far this year.
Sterling has lost over half a cent this morning, sending it down to $1.249 against the dollar this morning. That’s the lowest since late November last year.
It appears to be mainly due to dollar strength, with the US currency benefitting from forecasts that the Federal Reserve will cut interest rates more slowly than expected.
The euro is also down against the dollar, after the European Central Bank signalled yesterday it could start cutting interest rates in June.
Neil Wilson, chief market analyst at Markets.com, says:
The UK economy grew tepidly in February, with GDP expanding by 0.1%. Sterling remains under the cosh.
The euro sank to its weakest since mid-November on anticipation of policy divergence.
Updated
Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), points out that smaller UK businesses, especially in the retail and hospitality sector, are still struggling, even though the economy has been growing this year:
“Positive economic growth in February is certainly welcome, building on January’s momentum and giving a measure of optimism to small firms, who have been battling against strong headwinds for some time now.
There are signs of cautious recovery among the small business community – but it is important to emphasise that this is not evenly distributed between sectors. It will take more than flashes of growth to raise spirits in the hospitality and retail sectors, for example, whose confidence scores were way below the headline figure for all businesses at the end of last year, according to our Small Business Index.
Today’s ONS data shows that these sectors continue to struggle.
✅Today’s GDP rise is good news for the economy.
— Federation of Small Businesses (FSB) (@fsb_policy) April 12, 2024
📊But small firms need more than flashes of growth - so the Government needs to think hard about how to create the best possible environment for start-ups and entrepreneurs.https://t.co/Cqgqj5rdih
The outlook for the UK economy is “undoubtedly improving”, argues ING’s developed markets economist James Smith:
“The UK’s monthly GDP numbers have been on a wild ride over the past few months.
But fresh data shows that the economy grew by 0.1% in February as widely expected. And that followed a decent rebound in activity in January after December was dragged down by a strangely weak Christmas trading period for retailers. Assuming we get another slight pick up in activity during March, we think the UK economy is poised to grow by 0.3% for the first quarter as a whole.
That would mark the end of a very modest technical recession, albeit one where the aggregate figures masked steeper falls in per capita output.
UK stocks up on GDP joy and mining rally, reports AJ Bell
Share prices in London are rallying (see previous post) on relief that the UK economy continued to grow in February, reports Russ Mould, investment director at AJ Bell.
With the FTSE 100 index rising through the 8,000 point mark this morning, he says:
“The second monthly GDP increase in a row for the UK has triggered a ticker tape parade from investors as they become more hopeful the country will come out of recession.
“Both the FTSE 100 and the more domestic-focused FTSE 250 index jumped 0.8% at the market open, indicating investors are happy that the economy is moving forward, albeit at a snail’s pace. Some growth is better than no growth at all.
“Housebuilders and supermarkets were in demand as investors took the view that a stronger economy will give a boost to consumer confidence and provide a better backdrop for spending.
“Miners also helped to give the FTSE 100 a lift as copper prices continued to climb thanks to the twin engines of supply fears and brighter demand prospects.
Updated
FTSE 100 back at 8,000 points
Britain’s FTSE 100 share index has climbed back to 8,000 points, less than 50 points from its alltime high.
The blue-chip index has now gained 78 points, or almost 1%, today, to trade at 8,004 points. That puts it nearer its alltime peack of 8,047 points.
Markets are recovering after a choppy week, as investors weigh up Wednesday’s high-than-expected US inflation reading which has undermined hopes of early interest rate cuts in America.
Precious metals producer Fresnillo is the top riser, up 5%, after the gold price hit a new record high today.
UK housbuilders Taylor Wimpey (+4.4%) and Persimmon (+3.5%) are close behind.
And BP is still in the top risers (+2.5%), following last night’s reports that the UAE’s state oil company has explored a multibillion pound takeover.
Labour’s shadow chancellor, Rachel Reeves, has responded to today’s GDP data, saying:
“After 14 years of Conservative economic failure, Britain is worse off with low growth and high taxes. The Conservatives cannot fix the economy because they are the reason it is broken.
Hailey Low, associate economist at NIESR, agrees that the UK economy seems to be at a turning point…. but also points out that it has effectively flatlined since 2022:
Monthly GDP grew by 0.1% in February 2024, with contributions from all major sectors except construction following a revised 0.3% growth in January. In the three months to February, GDP growth was 0.2%, higher than what we forecasted last month.
On the back of exiting a shallow recession in 2023, this seems to be a turning point, but in a broader perspective, the UK economy has flatlined since 2022.
Increasing productivity will be a constant challenge that requires structural changes and long-term spending commitments to public investment and infrastructure.”
⚡️Our latest reaction to today's #GDP figures is out 📈
— National Institute of Economic and Social Research (@NIESRorg) April 12, 2024
Watch this page as our full analysis will be published later today 👉 https://t.co/k40Ii3Afea@HaileyLow_ @EconSteveM pic.twitter.com/okMQGk2qMF
Shares open higher in London
Shares have opened higher in London, as City traders digest the news that Britain is escaping recession.
The FTSE 100 index of blue-chip shares has gained almost 0.9% or 68 points, to trade at 7992 points.
Nearly every share on the Footsie is up, helping to move it closer to its alltime high of 8,047 points, hit in February 2023.
BP is among the top risers, up 2.6%, after Reuters reported last night that the United Arab Emirates’ state-owned oil company had considered launching a takeover bid for the UK oil giant!
Those deliberations “did not progress beyond preliminary discussions”, though.
Updated
Although the economy expanded a little in February, it was actually smaller than a year ago!
The ONS estimates that GDP fell 0.2% in February compared with the same month last year.
Over the longer term, GDP is estimated to have fallen by 0.1% in the three months to February 2024 compared with the three months to February 2023.
These chart shows the broader picture – UK growth has been lacklustre for months.
IoD: Disappointing economic growth in February suggests the economy is still fragile
The Institute of Directors don’t share Jeremy Hunt’s cheery take on today’s GDP report.
Dr. Roger Barker, Director of Policy at the Institute of Directors, points out that the economy barely grew in February, by expanding just 0.1%.
This suggests that the economy is still in a fragile state, Barker warns, adding:
After a strong start to the year, the consumer-facing parts of the economy – particularly accommodation and food services – took a backward step. Construction was also surprisingly weak, although there were encouraging signs of revival in production and manufacturing output.
“It appears that the UK’s ascent out of the mild technical recession of last year is a relatively shallow one. Although the latest figures suggest that the UK is likely to generate positive economic growth in the first quarter, there are few signs of a strong economic rebound.
The assertion that the UK economy has decisively turned the corner, as recently asserted by the Prime Minister, is still yet to find confirmation in the data.
Updated
Economists hopeful UK is pulling out of recession
City experts sound confident that the UK economy will pull itself out of recession.
Today’s news that the economy grew by 0.1% in February and 0.3% in January bolsters hopes that GDP did not shrink in the January-March quarter.
If that happens, it would end the techncial recession that gripped the country in the second half of 2023, when GDP shrank in Q3 and Q4 2023.
Having said that, though, growth 0f 0.1% in February isn’t exactly rollicking.
Richard Carter, head of fixed interest research at Quilter Cheviot, says:
“The UK has continued its positive start to the year as GDP grew again in February, albeit only marginally, and looks on course to be pulled out of the short and shallow recession it entered at the end of last year.
“UK GDP is estimated to have risen 0.1% in February, a slight dip compared to January’s 0.3% growth which was revised up from 0.2%, but still positive nonetheless. This uptick was driven primarily by improvements in the UK’s services and production sectors.
Neil Birrell, chief investment officer at Premier Miton Investors, says:
“The UK economy grew, albeit very modestly, in February, suggesting that any sort of meaningful recession will be avoided.
With inflation tracking back, the Bank of England might be persuaded to start cutting rates sooner rather than later and after the CPI data out of the US and the ECB meeting over the last week, we could well see the Fed being the last of the three to take any action on rates. That would quite a shift over a period of a few months.”
“The sun is finally out but the UK economy outlook remains foggy” says Yael Selfin, chief economist at KPMG UK.
“Despite weaker momentum in February, the economy’s ongoing recovery is the latest piece of evidence that the shallow technical recession is already behind us. Growth was helped by the January cut in National Insurance, a further boost to purchasing power from falling inflation, and an easing in cost pressures for businesses. Combined with more timely survey data, we expect GDP to grow at around 0.3% over Q1.
“Nonetheless, there are limits to the UK’s growth potential this year. Consumer spending remains fragile. Business investment could be dented by uncertainty related to the general election and growing speculation around a second fiscal event in the Autumn, while weakness in the housing market could further drag on construction by lowering the return on new housebuilding.
Hunt: The economy is turning a corner
Chancellor of the Exchequer Jeremy Hunt has welcomed the news that the UK economy grew by 0.1% in February, saying:
“These figures are a welcome sign that the economy is turning a corner, and we can build on this progress if we stick to our plan.
“Last week our cuts to National Insurance for 29 million working people came into effect across Britain, as part of our plan to reward work and grow the economy.”
Full story: UK takes another step on path to exit recession
Britain’s economy has taken a step closer to exiting recession after official figures showed growth continued in February despite a washout month for retailers after one of the wettest starts to a year on record.
Here’s the full story:
The UK economy is putting further distance from last year’s recession, says Jeremy Batstone-Carr, European strategist at Raymond James Investment Services
“Data released this morning by the ONS shows that UK GDP expanded by 0.1% in February. This signals a further move away from the shallow economic contraction experienced over the second half of 2023.
“More evidence supports this revival. Service sector output delivered a second consecutive month of expansion, which, paired with upbeat retail sales and forward-looking business surveys, point to strengthened activity in March. Industrial output remains below pre-pandemic levels, and gas and electricity output were subdued by mild weather. But a broad revival is nonetheless underway, as part of an improving global outlook.
“Today’s data indicates that the UK’s economic trajectory is on a shallow but steady upward course. The measures introduced in the March Budget will further enhance prospects in the short term. However, decelerating inflation paves the way for the Bank of England to commence its rate cutting process in the coming months, a decision which should also prove supportive to the growth outlook.”
UK GDP: the details
Britain’s industrial sector was the largest contributor to growth in February.
Today’s GDP report shows that production output grew by 1.1% in February, more than reversing a 0.3% drop in January.
Manufacturing output rose by 1.2%, driven by a surge in manufacturing of transport equipment such as cars.
The services sector had a calmer month – it grew by 0.1% in February, slower than the 0.3% growth in January.
And it was a month to forget for builders, with construction output falling by 1.9% in February.
The ONS cites “anecdotal evidence” that heavy rainfall delayed planned work and decreasing output in February.
ONS: The economy grew slightly in February
Here’s ONS director of economic statistics Liz McKeown on the news that the UK economy grew by 0.1% in February:
“The economy grew slightly in February with widespread growth across manufacturing, particularly in the car sector. Services also grew a little with public transport and haulage, and telecommunications having strong months.
“Partially offsetting this there were notable falls across construction as the wet weather hampered many building projects.
“Looking across the last three months as a whole, the economy grew for the first time since last summer.”
UK economy grew by 0.1% in February
Newsflash: the UK continued to grow in February, boosting hopes that the economy is escaping recession.
GDP expanded by 0.1% in February, new data from the Office for National Statistics shows, lifted by growth in the production and services sectors.
And the ONS has lifted its forecast for January, to show 0.3% growth, up from 0.2% previously estimated.
This suggests the economy may manage to grow in the first quarter of 2024. And that would mean the short, shallow recession that began at the end of 2023 will officially end.
GDP is estimated to have grown 0.1% in February 2024:
— Office for National Statistics (ONS) (@ONS) April 12, 2024
▪️ Services grew (+0.1%)
▪️ Production grew (+1.1%)
▪️ Construction fell (-1.9%)
➡️ https://t.co/N7NfPfXG6i pic.twitter.com/8VaYZ5SIz0
Updated
Half of consumers ‘cut back on non-essential spending'
Even if the economy is growing again, households are still struggling.
Half of consumers have cut back on their non-essential spending so far this year, with eating out the most likely thing to be cut from budgets, a survey this morning shows.
Just 3% of consumers say that they have been able to spend more on non-essentials in the first quarter, with 52% cutting back, according to the KPMG Consumer Pulse survey.
Eating out was the most common discretionary spending cut, listed by 72% of those who are scaling back, followed by clothing purchases (62%) and takeaways (58%).
Updated
Sanjay Raja, Deutsche Bank’s chief UK economist, predicts wet weather and lower energy production will mean UK growth slower in February, to 0.1%.
But he also believes the economy is at a ‘turning point’ after last year’s shallow recession.
Raja explains:
After matching our estimates in January, we expect GDP growth to slow to 0.1% m-o-m in February 2024 (Jan-24: 0.2% m-o-m). What’s driving the slowdown? Wetter weather and lower oil/energy production will, we think, keep GDP from budging very much. Overall, we see services activity and industrial production up 0.1% m-o-m, respectively, with construction output flat on the month.
Looking ahead, we think the UK economy is at a turning point following on from its short and shallow recession last year. We see GDP picking up by 0.2% q-o-q in Q1-24, and pushing to 0.3% - 0.4% q-o-q for the remainder of the year. For 2024 as a whole, we see GDP up 0.5%, rising by 1.5% next year.
Introduction: UK GDP report in focus
Good morning.
We’re about to learn whether the UK is climbing out of the recession into which it slipped at the end of last year.
At 7am, the Office for National Statistics will release its first estimate for UK GDP in February, and the City are hoping to see signs of growth.
Economists predict that GDP rose by 0.1% in February; a weak expansion, following 0.2% growth in January. That would raise the chances that the economy grew in the first quarter of 2024 – which would end the recession.
Reminder: The UK ended 2023 in a technical recession, after shrinking slightly in both the third and fourth quarters of last year.
To escape recession, it needs to not shrink in January-March (and that data is due in a month’s time).
Bad weather may have weighed on UK growth this year, though. We already know that retail sales growth slowed during a wet February, when storms kept people at home.
Any signs that the downturn is over would be welcomed by the government, with a general election close.
But the financial markets are not being very kind to Rishi Sunak this week. The PM’s hopes that the public might see lower taxes and cheaper mortgages soon have weakened, as traders scaled back expectations of interest rate cuts in 2024 yesterday.
The City now expects just two quarter-point cuts to UK interest rates in 2024, which would lower rates by half a percentage point to 4.75% by December.
Today’s GDP report may not change the outlook for rate cuts, explains Danni Hewson, head of financial analysis at AJ Bell:
UK GDP figures are expected to be tepid, not too hot or too cold, and unlikely to do much to change thinking at the Bank of England.
“Where just a few months ago markets were betting rates here in the UK could fall below 4% by Christmas now only two cuts are being priced in. The sands are shifting and investors are having to be fleet of foot.”
The agenda
7am BST: UK GDP report for February
Noon BST: Bank of England to publish review of its forecasting models
1pm BST: India’s inflation rate for March
3pm BST: University of Michigan’s index of US consumer confidence
Updated
