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UK economy defies Brexit fears as growth hits one-year high - live updates UK economy defies Brexit fears as growth hits one-year high - live updates
(35 minutes later)
10.42am GMT
10:42
PwC: Britain growing steadily since Brexit vote
John Hawksworth, chief economist at PwC, has a good take on today’s GDP report:
“Today’s revised GDP data were a mixed bag of good and bad news, but this doesn’t change the big picture that the UK continued to grow steadily during the six months following the Brexit vote.
“Estimated fourth quarter GDP growth was marked up slightly from 0.6% to 0.7% due primarily to stronger estimated growth in manufacturing. This was linked also to a combination of stronger export growth on the back of a more competitive pound and a gradually strengthening world economy.
“Consumer spending growth also remained solid in the fourth quarter as a whole, although the latest retail sales figures suggest that this has shown signs of tailing off in December and January.
“Less positively, estimated annual GDP growth in 2016 was revised down from 2% to 1.8%, pushing the UK slightly below Germany (1.9%) in the G7 growth league, though the difference is well within the margin of error on any such early GDP estimates.
“The main reason for the downward revision seems to have been weaker North Sea oil and gas production during the first half of 2016; however, this is a sector-specific trend that does not really reflect the underlying strength of the UK economy. Excluding oil and gas output, estimated UK GDP growth might actually have been revised up in 2016.
10.38am GMT
10:38
Reuters have also spotted that Britain has lost its crown as the world’s fastest growing major economy:
Britain's 2016 GDP growth revised down to 1.8% from 2.0% - now no longer fastest in G7 (Germany 1.9%) https://t.co/EH0RQY6OuN via @ReutersUK
Headlines you will never read:"Britain actually not fastest-growing economy in western world after all." https://t.co/LPLJQFoqdN
10.35am GMT
10:35
Today’s growth report shows that fears of an immediate recession if Britain voted to leave the EU were misplaced.
But...the fall in business investment is a concern, says Ian Kernohan, Economist at Royal London Asset Management:
“Far from slowing down after the vote to leave the EU, GDP growth actually picked up in the second half of the year. However, there were some signs that Brexit uncertainty is starting to have some impact on the corporate sector, with business investment down during the last three months, combined with slower growth in consumer spending.
10.33am GMT
10:33
UK no longer fastest-growing G7 economy
Britain appears to have lost its claim to be the fastest-growing major economy.
Despite the strong expansion in Q4, growth for 2016 as a whole has been revised down to 1.8%, from 2%.
That’s slower than Germany, which grew by 1.9% last year, but still ahead of the US which only managed 1.6% growth.
Now, all those numbers could also be revised in the future. But right now, chancellor Philip Hammond won’t be able to boast about the fastest growth in the G7 when he gives next month’s budget speech.
The UK has lost its title as the world's fastest growing advanced economy in 2016, despite a Q4 growth upgrade https://t.co/fmFQ9mtjfY pic.twitter.com/STLLWgE7Ku
10.26am GMT
10:26
Darren Morgan, head of GDP at the ONS, has warned that consumer spending has tailed off in recent months.
Overall, the dominant services sector continued to grow steadily, due in part to continued growth in consumer spending, although retail showed some signs of weakness in the last couple of months of 2016, which has continued into January 2017.
10.19am GMT
10:19
Sam Tombs of Pantheon Economics is concerned that Britons are spending beyond their means....
UK GDP breakdown shows real household spend up 0.7%, even though employees' compensation grew by just 0.1%. This is not sustainable growth
Maybe the most striking thing from GDP revisions today is detail on where growth is coming from. 2016 entirely driven by household spending
10.08am GMT10.08am GMT
10:0810:08
Experts react to UK GDP reportExperts react to UK GDP report
The City has given today’s growth report a rather muted reception.The City has given today’s growth report a rather muted reception.
Jeremy Cook, chief economist at the international payments company, World First, says that last year’s growth figures are rather ancient history.Jeremy Cook, chief economist at the international payments company, World First, says that last year’s growth figures are rather ancient history.
“UK GDP may have gained some momentum into the end of 2016 but recent news from UK seems to have shown that that momentum has been lost in the early weeks of 2017.“UK GDP may have gained some momentum into the end of 2016 but recent news from UK seems to have shown that that momentum has been lost in the early weeks of 2017.
Services growth is set to slow, buffeted by rising inflation and slowing real wage gains and a consumer that is not waving but drowning, business investment remains poor given uncertainty over the negotiations between the UK and the EU following the Brexit vote last summer and while trade was stronger on the quarter this is purely a function of the devaluation of the poundServices growth is set to slow, buffeted by rising inflation and slowing real wage gains and a consumer that is not waving but drowning, business investment remains poor given uncertainty over the negotiations between the UK and the EU following the Brexit vote last summer and while trade was stronger on the quarter this is purely a function of the devaluation of the pound
Several economists are concerned by the fall in UK business spending (or ‘gross fixed capital formation’) in the last quarter.Several economists are concerned by the fall in UK business spending (or ‘gross fixed capital formation’) in the last quarter.
Duncan Weldon, head of research at Resolution Group explains why it might be a problem:Duncan Weldon, head of research at Resolution Group explains why it might be a problem:
Mixed UK GDP picture: decent net trade but weak biz investment.Mixed UK GDP picture: decent net trade but weak biz investment.
Weak gross fixed capital formation is kinda a problem if you want to run a capitalist economy. Just saying. It's sort of important.Weak gross fixed capital formation is kinda a problem if you want to run a capitalist economy. Just saying. It's sort of important.
Jo Michell, economist lecturer at Bristol Business School, is also concerned by the 1% drop in business spending:Jo Michell, economist lecturer at Bristol Business School, is also concerned by the 1% drop in business spending:
It doesn't really look like an investment-led boom, does it? https://t.co/9Z1JCZpAJXIt doesn't really look like an investment-led boom, does it? https://t.co/9Z1JCZpAJX
Danielle Haralambous of the Economist Intelligence Unit points out that Britain’s pharmaceuticals sector had a good quarter:Danielle Haralambous of the Economist Intelligence Unit points out that Britain’s pharmaceuticals sector had a good quarter:
Revision to #UK Q4 GDP (0.7% v 0.6%) after strong Dec manufacturing output, itself the result of a surge in (volatile) pharmaceutical outputRevision to #UK Q4 GDP (0.7% v 0.6%) after strong Dec manufacturing output, itself the result of a surge in (volatile) pharmaceutical output
Overall, manufacturing output surged by 1.2% during the quarter. Here’s Ms Lee Hopley, chief economist at EEF, the manufacturers’ organisation:Overall, manufacturing output surged by 1.2% during the quarter. Here’s Ms Lee Hopley, chief economist at EEF, the manufacturers’ organisation:
“The UK economy performed more strongly that first estimated at the end of 2016, aided by a particularly solid quarter for manufacturing growth.“The UK economy performed more strongly that first estimated at the end of 2016, aided by a particularly solid quarter for manufacturing growth.
The resilience of the UK economy, particularly in the latter part of 2016 has been supported by a robust support from net trade and a rapid post-referendum recovery on consumer’s confidence to keep spending.The resilience of the UK economy, particularly in the latter part of 2016 has been supported by a robust support from net trade and a rapid post-referendum recovery on consumer’s confidence to keep spending.
But...But...
“The UK economy is rarely without its weak points and at the end of 2016 it was business investment. Capital expenditure by businesses saw a contraction in the final months of last year contributing the first year-on-year contraction in business investment since 2009. It’s too soon to declare this an worrying omen for 2017, especially as more recent survey indicators have been signalling a more positive trend.“The UK economy is rarely without its weak points and at the end of 2016 it was business investment. Capital expenditure by businesses saw a contraction in the final months of last year contributing the first year-on-year contraction in business investment since 2009. It’s too soon to declare this an worrying omen for 2017, especially as more recent survey indicators have been signalling a more positive trend.
9.52am GMT9.52am GMT
09:5209:52
But..in a worrying signal, UK business investment fell by 1% in the last quarter.But..in a worrying signal, UK business investment fell by 1% in the last quarter.
The ONS reports that there was “a slowdown within business investment” in the last three months of 2016. This was driven by subdued growth within the “ICT equipment and other machinery and equipment” assets.The ONS reports that there was “a slowdown within business investment” in the last three months of 2016. This was driven by subdued growth within the “ICT equipment and other machinery and equipment” assets.
9.46am GMT9.46am GMT
09:4609:46
As this chart shows, Britain’s economy has just posted its fastest quarterly growth in a year.As this chart shows, Britain’s economy has just posted its fastest quarterly growth in a year.
9.45am GMT9.45am GMT
09:4509:45
Net trade boosts UK growthNet trade boosts UK growth
Today’s report shows that net trade helped to drive Britain’s economic growth in the last quarter 0f 2016.Today’s report shows that net trade helped to drive Britain’s economic growth in the last quarter 0f 2016.
Net trade added 1.3 percentage points to the UK growth rate in October to December, says the ONS. That reverses a 1.2% decline in the third quarter.Net trade added 1.3 percentage points to the UK growth rate in October to December, says the ONS. That reverses a 1.2% decline in the third quarter.
UK Q4 GDP growth revised up to 0.7%q/q off the back of a big contribution from net trade. Consumers chipped in too. pic.twitter.com/YG8CGnoVlbUK Q4 GDP growth revised up to 0.7%q/q off the back of a big contribution from net trade. Consumers chipped in too. pic.twitter.com/YG8CGnoVlb
9.34am GMT
09:34
UK growth revised up to 0.7%
Breaking! Britain economy grew faster than expected in the final three months of 2016!
GDP expanded by 0.7% in the October-December quarter, according to new estimates from the Office for National Statistics, up from 0.6%.
That’s because industrial output was stronger than expected -- growing by 0.3%, not flat as first thought. Construction output has been revised up to 0.2%, from 0.1%.
The figures also show that the service sector drove the recovery, by expanding by 0.8% (in line with initial forecasts)
But it’s not all good news.... Q4 year-on-year growth has been revised down to 2.0%, from 2.2%.
More to follow...
Updated
at 9.51am GMT
9.14am GMT
09:14
It’s possible, although unlikely, that Britain’s growth rate for the last quarter could be revised higher in a few minutes, from 0.6% to 0.7%.
Analysts at Royal Bank of Canada say:
The first estimate of Q4 GDP growth was 0.6% q/q in real terms. Since then we have learnt that favourable revisions to industrial production added 0.04ppts to headline GDP growth with marginally positive news in the construction sector too. This clearly means the prospect of an upward revision to GDP needs to be considered.
However, as a central case our forecast is that Q4 GDP is confirmed at 0.6% q/q, as the preliminary estimate had an index level which translated into 0.56% to two decimal places. So, even with the known upward revisions it still isn’t sufficient to turn into an upgrade to 0.7% q/q.
Economist Shaun Richards agrees that an upgrade is possible:
UK GDP is due at 9:30 am with a possibility of an upwards revision due to the production and trade numbers #GBP #BoE
9.05am GMT
09:05
Newsflash: German business confidence has risen this month, according to the IFO thinktank.
IFO’s business confidence index index has unexpected come in at 111.0, beating forecasts, and ahead of 109.9 in January.
*IFO FEB. GERMAN BUSINESS CONFIDENCE INDEX AT 111.0; EST. 109.6
9.02am GMT
09:02
The euro has now fallen its lowest level against a basket of currencies since last november, says Kit Juckes of Societe Generale.
He says:
Political risk is beginning to the Euro in earnest, reflected by the Euro’s trade-weighted value reaching the lowest levels since the US Presidential election, and the OAT/Bund spread reaching the widest levels since then as well. Looking further back, we last had an OAT/Bund spread this wide in November 2012.
OAT/Bund spread = the difference between France and Germany’s borrowing costs.
Kit also predicts further weakness as the French election approaches.
Bloomberg have now been tracking the implied probability of the main candidates winning from Oddschecker for just over a month and Marine le Pen’s odds have risen steadily over that period while Emmanuel Macron and François Fillon’s have varied more. The net result is that all three are virtually level-pegging now. So much uncertainty with 9 weeks to go until the first round of the election means we will probably see nervousness persist, and undermine the Euro across the board.
Latest betting odds for French presidential election: 3 candidates neck and neck (via @kitjuckes). pic.twitter.com/2UYRoKsizS
Updated
at 9.08am GMT
8.41am GMT
08:41
Housebuilder Barratt is also having a good morning, after it reported a 9% jump in profits for the last year.
Investors like @BarrattHomes H1 statement as well they might as firm turns focus from biz investment to cash for shareholders w/ special div pic.twitter.com/ftIimwdXKS
8.35am GMT
08:35
London’s stock market is rising in early trading, led by Lloyds Banking Group.
Lloyds shares have gained almost 4% after it reported profits had more than doubled to £4.2bn over the last year.
Lloyds told the City that:
“Our performance is inextricably linked to the health of theUK economy which has been more resilient than the market expected post referendum.”
Lloyds army of small shareholders will share a payout of over £2bn; the bank will pay a special 0.5p dividend per share, on top of a 2.55p ordinary dividend.
8.17am GMT
08:17
Boom! The German DAX share index has hit 12,000 points for the first time since April 2015.
Shares in German exporters are up, thanks to the weak euro (which makes them more competitive). Industrial giant Thyssenkrupp is leading the charge, up 4.6% after agreeing to sell its Brazilian steel business.
8.15am GMT
08:15
Worries over the French election are also driving investors into the safety of German debt.
This has pushed the interest rate on two-year bonds to a fresh record low of -0.87% this morning.
That means investors are paying more than the face value of the bonds, so they’ll make a loss if they hold them to maturity (although they can sell them to the European Central Bank’s stimulus programme instead)
Wow! #Germany's 2y yields just drop to fresh all-time low at -0.87% on Bund shortage. 2y Bunds used as collateral and bought by #ECB for QE. pic.twitter.com/oGVqcvmw2C
8.00am GMT
08:00
Pound hits 2017 high against the euro
The pound has his a two-month high against the euro, as European political worries weigh on the single currency.
Sterling has gained half a eurocent to €1.188 for the first time since 21 December, meaning one euro now only buys 84.17p.
Nice to see the UK Pound £ pushing higher towards 1.19 versus the Euro this morning. #BoE #GBP
The euro is also losing ground against the US dollar; down 0.25% at $1.0507.
The euro’s weakness shows that mounting concern that Marine Le Pen could become the next president of France, and potentially trigger the country’s exit from the single currency.
Kathleen Brooks of City Index believes that as Le Pen victory could be curtains for the euro.
No one seems optimistic about the political future. Marine Le Pen in France is now the front-runner to win the first round of the French Presidential election, and her prospects are also improving for the second round.
This has caused the spread between French and German yields to surge, and we expect this to continue. Political risk also weighed on the EUR/USD, which managed to hold above key 1.0500 support but still looks vulnerable as victory for Eurosceptic Le Pen could spell the end for the single currency.
7.42am GMT
07:42
The agenda: UK growth report coming up
Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We’re about to get a more detailed look at how Britain’s economy performed in the last quarter.
Updated GDP figures, due at 9.30am, will probably confirm that the economy expanded by a robust 0.6% in October to December - driven by the service sector.
This second-estimate of GDP will also outline outline how government spending, household consumption, business investment and trade fared over the quarter - so it’s rather more comprehensive than the preliminary report issued a month ago.
Overall, it will show whether Britain’s economy is really taking the Brexit vote in its stride, or if consumers and businesses are starting to trim back.
Michael Hewson of CMC Markets explains:
The weakness of the pound is expected to help exports contribute 2%, while imports are expected to fall from 1.4% to 0.5%.
Services are still expected to provide the majority of the expansion at 0.8%, though a little worryingly business investment is expected to stall.
Also coming up today
At 9am, the latest IFO survey of German confidence is released - showing how firms in Europe’s largest economy feel about current conditions, and future prospects.
A ‘flash’ estimate of eurozone inflation for February is published at 10am GMT. Economists predict at consumer prices rose by 1.8% annually, matching January’s figure.
We’re getting financial results from Lloyds Banking Group, recruitment firm Hays, housebuilder Barratt Homes, outsourcing group Serco, and high-end confectioner Hotel Chocolat.
The good news for Lloyds shareholders is that the bank has posted its biggest profits in a decade, as it finally puts the trauma of the financial crisis behind it. There’s a special dividend in the offing too....
And @AskLloydsBank seeing a good 2016 too, profit before tax of £4.2 billion, more than double the £1.6 billion in 2015
America’s central bank, the Federal Reserve, will release the minutes of its last meeting at 7pm GMT (2pm East Coast). They may contain hints on how close the Fed is to raising interest rates next month.
We’ll be tracking all the main events through the day....
Updated
at 8.29am GMT