Data released by the Office for
National Statistics (ONS) revealed that
total retail sales volumes rose by 0.3%
in July; this was the first increase in
three months and confounded economists’ expectations of a small monthly
decline. Growth was largely driven by
a surge in online and mail order sales,
which recorded their sharpest rise
since December.
July saw Amazon hold its annual
Prime Day promotion, although ONS
did say that greater spending was seen
across a number of online retailers, with
sales figures boosted by ‘a range of
offers and promotions.’ The British Retail
Consortium also noted that ‘the summer
sunshine’ had provided a boost to the
figures, with sales of ‘summer clothing,
air conditioning appliances and outdoor
foods’ all benefitting from record
temperatures.

Figures released last month by the Office for National Statistics (ONS) revealed that the economy returned to growth in May after contracting during April. In total, UK economic output rose by 0.5% across the month, significantly exceeding the consensus forecast from a Reuters poll of economists which had predicted zero growth.

ONS said the main sectors of the economy all expanded during May including construction, travel and manufacturing. The data also revealed significant growth within health services as one of the key drivers of growth during the month.

In spite of May’s rebound, analysts still expect the economy to come under increasing pressure in the coming months as the cost-of-living squeeze weighs heavily on households’ ability to spend. Recent survey evidence also points to weaker growth, with July’s preliminary headline reading of S&P Global’s Purchasing Managers’ Index recording the weakest rise in UK private sector business activity for 17 months.

The latest gross domestic product (GDP) statistics show the UK economy unexpectedly shrank in April, increasing concerns about future growth prospects. Data released by the Office for National Statistics (ONS) revealed that the economy shrank by 0.3% in April following a fall of 0.1% in March; this was the first contraction in two consecutive months since the start of the pandemic. April’s figure was also much weaker than analysts had been expecting, with the consensus forecast from a Reuters poll of economists predicting a growth rate of 0.1%. ONS said a key driver behind April’s decline was a ‘significant reduction in NHS Test and Trace activity.’ It also noted some ‘common themes’ reported by firms across different industries, with many saying increases in the cost of production and supply chain shortages had affected their business. Commenting on the UK’s economic outlook the same day as the GDP figures were published, CBI Director General Tony Danker said the business group was “expecting the economy to be pretty much stagnant” and that “it won’t take much to tip us into a recession.” More recent survey data from S&P GlobalX’s closely watched Purchasing Managers’ Index also suggests the economy is showing signs of stalling. While the preliminary headline figure for June was unchanged at May’s 15-month low of 53.1, the index measuring new orders fell to 50.8, the weakest growth rate for over a year, with manufacturing order books dipping below the 50.0 growth threshold to 49.6. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, “The economy is starting to look like it is running on empty. Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. Business confidence has now slumped to a level which has in the past typically signalled an imminent recession.”

SFFS Economic Review_June 22

Bank warns of deteriorating outlook

The Bank of England (BoE) has warned that the UK faces a “sharp economic slowdown” in the coming months as it continues to raise interest rates in a bid to dampen rapidly rising prices.

Following its early-May meeting, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 6-3 majority to increase the Bank Rate from 0.75% to 1.0%, with the three dissenting voices each calling for a bigger hike to 1.25%. This was the fourth successive meeting that the MPC had raised rates, taking them to their highest level since 2009.

Central banks around the world are currently scrambling to cope with surging inflation which began after the post-pandemic reopening of the global economy and has continued to spiral following Russia’s invasion of Ukraine. Policymakers, however, are also trying to avoid sending their economies into a slump, which is creating a policy dilemma.

Speaking after the MPC announcement, BoE governor Andrew Bailey admitted, “We are in a very difficult position.” He added, “We’re walking a very narrow path between inflation on the one side, which is much higher than we want it to be, and on the other side very big external shocks which are causing a big loss of real income for people and businesses in this country.” Mr Bailey went on to warn of a “material deterioration in the outlook” for growth.

While falling short of predicting a technical recession – defined as the economy shrinking in two consecutive quarters – the BoE is now forecasting a decline in growth across the final three months of this year, with the economy then contracting by 0.25% in 2023. Minutes from the May MPC meeting though still point to further rate rises ‘in the coming months,’ with BoE Chief Economist Huw Pill recently warning “tightening still has further to run.”SFFS Economic Review_May 22