Tuesday March 21 2017
UK Inflation Rate At 3-1/2-Year High Of 2.3%
ONS | Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in the United Kingdom increased 2.3 percent year-on-year in February of 2017, above 1.8 percent in January and beating expectations of 2.1 percent. It is the highest inflation rate since September of 2013, boosted by rising fuel prices while food cost increased for the first time in 34 months.

Year-on-year, main upward pressure came from prices of transport (6.9 percent compared to 5.7 percent in January); housing and utilities (0.7 percent compared to 0.6 percent); recreation and culture (1.6 percent compared to 0.9 percent); restaurants and hotels (3.2 percent compared to 3 percent); food and non-alcoholic beverages (0.2 percent compared to -0.5 percent) and miscellaneous goods and services (1.1 percent compared to 0.8 percent). In contrast, cost of clothing and footwear edged down 0.1 percent (after being flat in January). 

On a monthly basis, consumer prices jumped 0.7 percent, following a 0.5 percent drop in January and above market expectations of 0.5 percent. The largest upward effect came from transport (1.2 percent compared to -0.6 percent in January), namely motor fuels, second-hand cars, sea and coach fares; recreation and culture (0.5 percent compared to -0.7 percent), namely personal computers including laptops and tablets; food (0.8 percent compared to 0.2 percent). 

The core index which excludes prices of energy, food, alcohol and tobacco increased 2 percent on the year, higher than 1.6 percent in the previous two months and above expectations of 1.8 percent. 




Thursday March 16 2017
UK Leaves Key Rate Steady At 0.25%
BoE | Joana Taborda | joana.taborda@tradingeconomics.com

The Bank of England Monetary Policy Committee kept the Bank Rate at a record low of 0.25 percent and left the stock of purchased assets at £435 billion on March 16th, 2017, in line with forecasts. Policymakers expect a slowdown in aggregate demand during this year and a rise in inflation to above the 2 percent target in the next few months.

Excerpts from the Monetary Policy Summary:

As the MPC had observed at the time of the UK’s referendum on EU membership, the appropriate path for monetary policy depends on the evolution of demand, potential supply, the exchange rate, and therefore inflation. The Committee expects a slowdown in aggregate demand over the course of this year, as household demand growth declines in reaction to lower real income growth. Official estimates of retail sales have weakened notably, consistent with this expectation, although other indicators of consumer demand such as consumer confidence have been steadier. Measures of overall activity growth have been resilient, with official estimates indicating a fairly steady pace of expansion around historical average rates and business surveys suggesting little change in the near term. It is possible that slowing consumption may be offset to some degree by other components of demand, such as a more supportive net trade position following last year’s fall in sterling and the recent pickup in global momentum.

CPI inflation increased to 1.8% in January, and the MPC expects it to rise above the 2% target over the next few months, before peaking at around 2¾% in early 2018 and drifting gradually back down towards the target thereafter. The projected overshoot entirely reflects the expected effects of the drop in sterling. Pay growth has remained subdued, while measures of inflation expectations remain at levels broadly consistent with the achievement of the inflation target.

Monetary policy cannot prevent either the real adjustment that is necessary as the UK moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany it over the next few years. Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth. For this reason, the MPC’s remit specifies that, in such exceptional circumstances, the Committee must balance the trade-off between the speed with which it intends to return inflation to the target and the support that monetary policy provides to jobs and activity. At its March meeting, the MPC continued to judge that it remained appropriate to seek to return inflation to the target over a somewhat longer period than usual. Eight members thought that the current stance of monetary policy remained appropriate to balance the demands of the Committee’s remit.  Kristin Forbes considered it appropriate to increase Bank Rate by 25 basis points.

As the Committee has previously noted, there are limits to the extent that above-target inflation can be tolerated. The continuing suitability of the current policy stance depends on the trade-off between above-target inflation and slack in the economy. The projections described in the February Inflation Report depend in good part on three main judgements: that the lower level of sterling continues to boost consumer prices broadly as expected, and without adverse consequences for expectations of inflation further ahead;  that regular pay growth does indeed remain modest, consistent with the Committee’s updated assessment of the remaining degree of slack in the labour market; and that the hitherto resilient rates of household spending growth slow as real income gains weaken, without a sufficient offset by other components of demand. 




Wednesday March 15 2017
UK Jobless Rate Hits Lowest Since 2005
ONS | Yekaterina Guchshina | yekaterina@tradingeconomics.com

UK unemployment rate fell to 4.7 percent in the period between November and January 2017 from 4.8 percent in the previous period and below market expectations of 4.8 percent. It was the lowest jobless rate since July to September 2005. The employment rate remained at all-time high of 74.6 percent as the number of people in work rose by 92 thousand while wage growth slowed.

Estimates from the Labour Force Survey show that, between August to October 2016 and the 3 months to January 2017, the number of people in work increased, the number of unemployed people fell, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) also fell.

There were 1.58 million unemployed people (people not in work but seeking and available to work), 31,000 fewer than for August to October 2016 and 106,000 fewer than for a year earlier. There were 867,000 unemployed men, 21,000 fewer than for August to October 2016 and 56,000 fewer than for a year earlier. There were 717,000 unemployed women, 10,000 fewer than for August to October 2016 and 50,000 fewer than for a year earlier. The unemployment rate was 4.7%, down from 5.1% for a year earlier. It has not been lower since July to September 2005. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) that were unemployed.

There were 31.85 million people in work, 92,000 more than for August to October 2016 and 315,000 more than for a year earlier. There were 23.34 million people working full-time, 305,000 more than for a year earlier. There were 8.52 million people working part-time, 10,000 more than for a year earlier. The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.6%, the joint highest since comparable records began in 1971.

There were 8.87 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), 34,000 fewer than for August to October 2016 and 59,000 fewer than for a year earlier. The inactivity rate (the proportion of people aged from 16 to 64 who were economically inactive) was 21.6%, slightly lower than for August to October 2016 (21.7%) and lower than for a year earlier (21.8%).

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.2 percent including bonuses, and by 2.3 percent excluding bonuses, compared with a year earlier.





Friday March 10 2017
UK Trade Deficit Narrows Slightly In January
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The UK’s deficit on trade in goods and services decreased slightly by £0.1 billion to £1.97 billion in January 2017 from a downwardly revised £2.03 billion in December. Exports advanced by £0.4 billion to an all-time high of £49.4 billion, boosted by higher sales of machinery and transport equipment, mainly electrical machinery and cars, and chemicals; and imports increased by £0.3 billion also to a record £51.4 billion, as purchases of oil and chemicals rose the most.

Exports of goods and services increased by £0.4 billion to an all-time high of £49.4 billion in January from £49.0 billion in December, boosted by higher sales of machinery and transport equipment, mainly electrical machinery and cars, and chemicals. Exports rose the most to France (8 percent), the Netherlands (7.1 percent), the US (7 percent), China (5.1 percent) and Germany (4.9 percent). By contrast, sales fell to Spain (-20.3 percent), Switzerland (-10.3 percent) and Canada (-8.8 percent).

Imports of goods and services rose by £0.3 billion also to a record £51.4 billion from £51.0 billion in the previous month, as purchases of oil and chemicals rose the most. Imports rose from Norway (52.9 percent), the Netherlands (10 percent), Spain (3.5 percent) and Germany (2.5 percent); but fell from Japan (-18.2 percent), France (-12.5 percent), the US (-7.4 percent), Switzerland (-5.4 percent) and China (-1.1 percent).

The trade in goods deficit narrowed by £0.1 billion to £10.8 billion between December 2016 and January 2017. In the same period, imports of oil increased from the non-EU countries, specifically Norway, which restricted the narrowing of the deficit. However, the erratics series had less impact on the trade in goods deficit in January 2017 than seen in previous months, with both exports and imports of these volatile commodities decreasing. When removing oil and the erratic commodities (ships, aircraft, precious stones, silver and non-monetary gold) the deficit narrowed by £0.8 billion, to £11.2 billion on the month.

On the price front, export prices increased by 2.1 percent and import prices increased by 2.5 percent. The value of sterling was 1.7 percent lower in January 2017 compared with the December 2016 average, following appreciation in November and December 2016. However, it remains 13.1 percent lower when compared with January 2016.

Between the 3 months to October 2016 and the 3 months to January 2017, the total trade deficit (goods and services) narrowed by £4.7 billion to £6.4 billion. The narrowing of the deficit reflected a greater rise in exports (6.3 percent) than the rise in imports (2.7 percent). Exports of services increased by 1.7 percent in the 3 months to January 2017; this led to an increase in the trade in services surplus for that period. Exports of unspecified goods (including non-monetary gold), oil, machinery and transport equipment (mainly electrical machinery, aircraft and cars) and chemicals were the largest contributors to the 3-monthly growth in exports of goods for the same period. The deficit of trade in goods, excluding oil and erratics, widened by £2.3 billion to £34.7 billion.




Wednesday February 22 2017
UK Annual GDP Growth Revised Down To 2% In Q4
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

UK's gross domestic product expanded 2 percent year-on-year in the fourth quarter of 2016, the same as in the previous period and below the preliminary estimate of 2.2 percent. Fixed investment and household consumption were the main drivers of growth while business investment contracted for the fourth straight period.

On the expenditure side, gross fixed capital formation rebounded (0.9 percent after showing no growth in Q3) and both household expenditure (3.2 percent from 2.9 percent) and government spending (0.6 percent from 0.2 percent) rose at a faster pace; while business investment contracted for the fourth straight period (-0.9 percent from -2.3 percent in Q3).

Exports fell 0.4 percent, following a 1.4 percent gain in Q3; while imports grew 1.7 percent, after rising by 4.2 percent the previous period.

On the production side, the service industries expanded 3.1 percent (3.3 percent in Q3), as output rose for: Distribution, hotels and restaurants (5.9 percent from 5.1 percent in Q3); transport storage and communications (4.5 percent from 4.8 percent); business services and finance (2.6 percent from 3.1 percent); and government and other services (1.4 percent from 1.7 percent). Industrial production rose at a faster 1.9 percent (1.2 percent in Q3), as growth accelerated for: manufacturing (1.9 percent from 0.8 percent in Q3); electricity, gas, steam and air conditioning supply (4.5 percent from -0.8 percent); and water supply, sewerage, waste management and remediation activities (6.7 percent from 5.1 percent). By contrast, mining and quarrying, including oil and gas extraction, shrank 2.9 percent (2.1 percent in Q3) . Construction expansion slowed to 0.9 percent from 1.6 percent in Q3, and agriculture output continued to fall (-3.6 percent from -4.2 percent in Q3).

Looking at 2016 as a whole, growth slowed to 1.8 percent from 2.2 percent in 2015 and 3.1 percent in 2014. Fixed investment and government spending slowed while household consumption grew further.




Wednesday February 22 2017
UK Q4 GDP Growth Revised Up To 0.7%
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The British economy advanced 0.7 percent on quarter in the three months to December of 2016, following a 0.6 percent expansion in the previous period and above the preliminary estimate of 0.6 percent, due to upward revisions within the manufacturing industries. On the expenditure side, exports rebounded sharply while household expenditure rose at a slower pace and business investment contracted.

From the expenditure side, the positive contribution to GDP came from net trade (1.3 percentage points), and household final consumption expenditure (0.4 percentage points). In contrast, gross capital formation subtracted 1.1 percentage points from the growth.

Exports jumped by 4.1 percent, following a 2.6 percent drop in the previous period, while imports shrank 0.4 percent following a 1.3 percent gain. As a result, the trade deficit narrowed to £11.0 billion from £17.2 billion in Q3. 

Total domestic expenditure decreased by 0.6 percent, after expanding by 1.7 percent in the previous period, as business investment shrank 1 percent (from 0.7 percent in Q3) while gross fixed capital formation showed no growth (from 0.9 percent). Meanwhile, household expenditure advanced by 0.7 percent (from 0.9 percent in Q2); and government spending rebounded 0.2 (from a flat reading). The level of inventories rose by £1.5 billion, following an increase of £0.4 billion in the previous period. 

From the production side, the service industries increased by 0.8 percent following a 1 percent gain in Q3 and marking the 16th consecutive quarter of growth. Output rose for: Distribution, hotels and catering (2 percent from 1.2 percent in Q3); transport, storage and communication (1 percent from 2.7 percent); business services and finance (0.5 percent from 0.7 percent); and government and other services (0.4 percent, the same as in Q3). Industrial output increased by 0.3 percent (-0.4 percent in Q3), as output expanded for: manufacturing (1.2 percent from -0.8 percent in Q3); electricity, gas, steam and air conditioning supply (3.1 percent from -4.4 percent); and water supply and sewerage (2 percent from -0.1 percent). By contrast, output from mining and quarrying (including oil and gas extraction) contracted by 7 percent (4.5 percent in Q3). Construction output advanced by 0.2 percent, following a 0.8 percent fall the previous period; and agriculture grew 1 percent, the first increase in four quarters.

Compared to the same period of 2015, the economy expanded 2 percent, the same as in the previous period.

Looking at 2016 as a whole, growth slowed to 1.8 percent from 2.2 percent in 2015 and 3.1 percent in 2014.




Wednesday February 15 2017
UK Unemployment Rate Unchanged At 11-Year Low
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

UK unemployment rate held at an 11-year low of 4.8 percent in the period between October and December 2016, in line with market expectations. The employment rate hit a new all-time high of 74.6 percent as the number of people in work rose by 37 thousand while wage growth slowed.

Estimates from the Labour Force Survey show that, between July to September 2016 and October to December 2016, the number of people in work increased, the number of unemployed people was little changed, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) decreased.

There were 1.60 million unemployed people (people not in work but seeking and available to work), little changed compared with July to September 2016 but 97,000 fewer than for a year earlier. There were 877,000 unemployed men, little changed compared with July to September 2016 but 48,000 fewer than for a year earlier. There were 720,000 unemployed women, little changed compared with July to September 2016 but 50,000 fewer than for a year earlier. The unemployment rate was 4.8 percent, down from 5.1 percent for a year earlier. It has not been lower since July to September 2005. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) that were unemployed.

There were 31.84 million people in work, 37,000 more than for July to September 2016 and 302,000 more than for a year earlier. There were 23.29 million people working full-time, 218,000 more than for a year earlier. There were 8.55 million people working part-time, 84,000 more than for a year earlier. The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.6 percent, the highest since comparable records began in 1971.

There were 8.86 million people aged from 16 to 64 who were economically inactive (not working and not seeking or available to work), 31,000 fewer than for July to September 2016 and 61,000 fewer than for a year earlier. The inactivity rate (the proportion of people aged from 16 to 64 who were economically inactive) was 21.6 percent, slightly lower than for July to September 2016 (21.7 percent) and lower than for a year earlier (21.8 percent).

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.6 percent, both including and excluding bonuses, compared with a year earlier.


Tuesday February 14 2017
UK Inflation Rate Rises To Highest Since June 2014
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

Consumer prices in the United Kingdom rose by 1.8 percent in the year to January 2017, following an 1.6 percent gain in the previous month but below market expectations of 1.9 percent increase. Still, it was the highest inflation rate since June 2014, mainly boosted by rising cost of fuel.

Main upward pressure came from: Transportation (5.7 percent from 3.7 percent in December) boosted by motor fuels (16.8 percent from 10 percent); recreation and culture (0.9 percent, the same as in December); restaurants and hotels (3 percent from 2.8 percent); housing and utilities (0.6 percent from 0.4 percent); and miscellaneous goods and services (0.8 percent from 1 percent).

By contrast, prices of food and non-alcoholic beverages fell 0.5 percent, the smallest drop since July 2014, following a 1.1 percent decline in December.

On a monthly basis, consumer prices went down 0.5 percent after rising by 0.5 percent in December and in line with market consensus. Prices fell sharply for: Clothing and footwear (-4.2 percent); furniture, household equipment and maintenance (-2.5 percent); recreation and culture (-0.7 percent); and transport (-0.6 percent).

The core index which excludes prices of energy, food, alcohol and tobacco increased by 1.6 percent on the year, the same as in December and below market consensus of 1.8 percent gain.


Friday February 10 2017
UK Trade Deficit Narrows On Higher Exports In December
ONS | Joana Ferreira | joana.ferreira@tradingeconomics.com

The UK’s deficit on trade in goods and services narrowed by £0.3 billion to £3.3 billion in December 2016 from a downwardly revised £3.6 billion in the previous month. Exports rose by 2.4 percent to an all-time high of £48.8 billion, while imports increased at a slower 1.7 percent also to a record £52.1 billion.

In December 2016, exports of goods and services increased by 2.4 percent from the previous month to an all-time high of £48.8 billion, mainly due to an increase in exports of goods to non-EU countries of £1.1 billion. Sales rose for erratic commodities, in particular non-monetary gold and aircraft; non-ferrous and other metals; and chemicals. 

Imports rose by 1.7 percent also to a record high of £52.1 billion, boosted by increases in the imports of material manufactures, including non-ferrous metals, iron and steel; machinery; road vehicles other than cars; and miscellaneous finished manufactures, including jewellery. By contrast, the imports of oil and chemicals fell.

In the fourth quarter of 2016, the deficit on goods and services narrowed by £5.6 billion to £8.6 billion from £14.1 billion in the previous period. This reflects an increase in exports in goods of £7.8 billion, mainly due to an increase in exports of goods to non-EU countries, while imports rose at a slower £2.2 billion. Exports of goods to non-EU countries rose by 17.3 percent to £43.8 billion. There was a smaller increase of 3.5 percent for exports to the EU, to £38.3 billion for the same period. Imports of goods from EU countries increased by 4.1 percent to £63.6 billion, with increases across all commodity groups. Imports to non-EU countries fell by 2.9 percent to £51.1 billion over the same period.

Considering 2016 full year, the total trade deficit widened to £39.4 billion from £29.8 billion in 2015, as imports increased more than exports. Purchases of goods and services went up by 6.4 percent to £582.3 billion from £547.2 billion the previous year, mainly due to higher imports of goods, with 61.2 percent of this rise coming from EU countries. Exports rose by 4.9 percent to £542.9 billion from £517.4 billion in 2015.


Thursday February 02 2017
UK Leaves Monetary Policy Unchanged
Bank of England | Joana Ferreira | joana.ferreira@tradingeconomics.com

The Bank of England Monetary Policy Committee voted unanimously to hold the Bank Rate at a record low of 0.25 percent and to leave the stock of purchased assets at £435 billion on February 2nd, 2017, saying inflation is likely to return to around the 2 percent target by February and then rise above it over the following months.

Excerpts from the Monetary Policy Summary:

The Committee’s latest economic projections are contained in the February Inflation Report. The MPC has increased its central expectation for growth in 2017 to 2.0% and expects growth of 1.6% in 2018 and 1.7% in 2019. The upgraded outlook over the forecast period reflects the fiscal stimulus announced in the Chancellor’s Autumn Statement, firmer momentum in global activity, higher global equity prices and more supportive credit conditions, particularly for households. Domestic demand has been stronger than expected over the past few months, and there have been relatively few signs of the slowdown in consumer spending that the Committee had anticipated following the referendum. Nevertheless, continued moderation in pay growth and higher import prices following sterling’s depreciation are likely to mean materially weaker household real income growth over the coming few years. As a consequence, real consumer spending is likely to slow.

The value of sterling remains 18% below its peak in November 2015, reflecting investors’ perceptions that a lower real exchange rate will be required following the UK’s withdrawal from the EU. Over the next few years, a consequence of weaker sterling is that the higher imported costs resulting from it will boost consumer prices and cause inflation to overshoot the 2% target. This effect is already becoming evident in the data. CPI inflation rose to 1.6% in December and further substantial increases are very likely over the coming months. In the central projection, conditioned on market yields that are somewhat higher than in November, inflation is expected to increase to 2.8% in the first half of 2018, before falling back gradually to 2.4% in three years’ time. Inflation is judged likely to return to close to the target over the subsequent year. 

Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth. For this reason, the MPC’s remit specifies that in such exceptional circumstances the Committee must balance the trade-off between the speed with which it intends to return inflation to the target and the support that monetary policy provides to jobs and activity. At its February meeting, the MPC continued to judge that it remained appropriate to seek to return inflation to the target over a somewhat longer period than usual, and that the current stance of monetary policy remained appropriate to balance the demands of the Committee’s remit.

As the Committee has previously noted, however, there are limits to the extent that above-target inflation can be tolerated. The continuing suitability of the current policy stance depends on the trade-off between above-target inflation and slack in the economy. The projections described in the Inflation Report depend in good part on three main judgements: that the lower level of sterling continues to boost consumer prices broadly as expected, and without adverse consequences for expectations of inflation further ahead; that regular pay growth does indeed remain modest, consistent with the Committee’s updated assessment of the remaining degree of slack in the labour market; and that the hitherto resilient rates of household spending growth slow as real income gains weaken. Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.