Service sector sees strong growth

3 February 2012
Last updated at 06:01 ET

The upturn in services suggests the economy is not headed for recession

The UK’s dominant service sector grew at its fastest rate since March 2011 in January, according to a key survey.

The Markit/CIPS services purchasing managers’ index (PMI) rose from 54 to 56. Any figure above 50 indicates growth.

Markit also reported the biggest monthly rise in business optimism since the survey started 15 years ago.

The data will reduce fears of a new recession, following a contraction in the economy at the end of last year.

An increase in new business also drove employment in the sector to rise at its fastest pace since March 2008, the survey found.

The service sector accounts for more than 70% of the UK’s economic output.

Recession ‘unlikely’

“All [this] points to a resounding revival of UK economic growth in January,” said Chris Williamson, chief economist at Markit.

“A slide back into recession is now looking increasingly unlikely. The economy could well expand at close to trend rate – around 2-2.5% per annum – in the first quarter if business conditions hold up in the next two months,” he added.

The data follows a similar survey showing the UK’s manufacturing sector returned to growth in January, with overall activity at its highest level for eight months.

The results will be closely analysed by the Bank of England when it meets next week.

Risks

The Bank had been expected to expand its quantitative easing programme to provide extra credit to the economy.

“The recent upturn in some of the key indicators should make for an interesting policy debate at next week’s Bank of England meeting,” said Philip Shaw from Investec.

“Our feeling is that there are still big downside risks out there. And the BoE’s own inflation forecast is so low in the medium term, it would take a big shift to the upside to remove the case for more easing,” he said.

However, the data contradicts the latest forecast from the National Institute of Economic and Social Research (NIESR).

The think tank predicted the UK economy would shrink by 0.1% in 2012.

Article source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-16869870

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UK inflation slows on VAT effect

14 February 2012
Last updated at 12:51 ET

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Phil Gooding from the ONS said previous inflationary pressures caused by VAT were not repeated this year

Inflation fell sharply in January as the impact of last year’s VAT rise was no longer shown in the figures.

The Consumer Prices Index (CPI) measure of inflation fell to 3.6% in January, down from 4.2% in December, according to the Office for National Statistics.

Retail Prices Index (RPI) inflation – including mortgage interest payments – fell to 3.9% from 4.8%.

VAT went up from 17.5% to 20% in January 2011, pushing up the annual inflation rates that year as a result.

The drop brings CPI inflation to a 14-month low. However, the rate remains well above the Bank of England’s 2% target.

The prime minister welcomed the drop in the rate.

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Analysis

Inflation is now falling rapidly, and has come down for each of the last 4 months and it is expected to keep on falling in coming months. But even so prices are still rising and at well above the target of 2% that the Bank of England is supposed to aim for.

In fact inflation at 3.6% means that prices are increasing at almost twice the rate that wages are, and at a much faster rate than people, such as pensioners, can hope to earn interest on their savings

That means that for millions of people things are still getting tougher every month as their bills keep on rising and their incomes fail to keep pace.

“Inflation is coming down and that is good news, as the cost of living is the most important issue facing families up and down the country,” David Cameron said.

However, Labour argued that prices remained high.

“For ordinary families right up and down throughout the country, the fact is prices went up last year, they’ve stayed up… and incomes of course haven’t risen at all,” said shadow treasury minister Owen Smith.

The latest figures from the ONS showed pay rising at a rate of 1.9%.

Letter

The 3.6% rate meant the governor of the Bank of England, Mervyn King, had to write a letter to the chancellor explaining why the rate was more than one percentage point above target.

Sir Mervyn King said inflation was likely to continue to fall – justifying the bank’s decision last week to inject an extra £50bn into the economy through quantitative easing.

“In coming months, that further moderation is likely to reflect the declining contributions from petrol prices and any remaining VAT impact, together with recently announced cuts to domestic energy prices,” he wrote.

“Although inflation is now falling broadly as expected, the process of rebalancing still has a long way to go. Growth remains weak and unemployment is high,” he added.

The bank is due to publish its latest quarterly inflation and growth forecasts on Wednesday.

Falling expectations

In addition to the impact of VAT, smaller increases in the cost of commodities and oil than seen a year earlier also helped to bring the inflation rate down, according to the ONS.

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The average price of petrol in January rose by 0.6p a litre, compared with a 5.4p rise last year.

Diesel was up 0.7p a litre, compared with a 5.8p rise in January 2011.

The month-on-month comparison showed small falls in the cost of clothing and footwear, furniture and household goods and transport whilst alcohol, household services and health rose slightly.

Analysts say CPI inflation could fall below the 2% target by the end of the year, driven by lower agricultural and commodity prices.

“Inflation expectations tend to follow actual inflation and, given that the CPI appears to be heading sharply lower, we expect inflation expectations to do likewise,” James Knightley from ING bank.

Article source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-17025863

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UK economy ‘to zigzag’ this year

15 February 2012
Last updated at 13:13 ET

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Bank of England governor Sir Mervyn King says “path to recovery slow and uncertain”

The UK economy will “zigzag” this year, dipping in and out of growth, but avoid going back into recession, Bank of England chief Sir Mervyn King has said.

The Bank’s quarterly inflation report predicts the economy will grow by about 1% and forecasts inflation will continue to fall in the coming months.

However, it now predicts inflation will decline towards 1.8% by 2014, not as low as the previous estimate of 1.3%.

Sir Mervyn also repeated that the eurozone crisis remained a big risk.

The report came on the same day official figures showed UK unemployment rose by 48,000 to 2.67 million in the three months to December, the smallest rise in almost a year.

Sir Mervyn said that some business surveys had indicated a pickup in the economy at the start of this year, but said this may not last.

“The fiscal consolidation and tight credit conditions at home and the weakness of our major overseas trading partners are acting as a drag on growth,” said Sir Mervyn.

“The underlying need for repair of balance sheets means that the path of recovery is likely to be slow and uncertain. For much of this year, there is likely to be a zigzag pattern of alternating positive and negative quarterly growth rates.”

He also said the extra Bank Holiday for the Queen’s Diamond Jubilee made it even harder than usual to interpret the official estimates of growth.

BBC economics editor Stephanie Flanders points out that for the first time in a while, the Bank did not cut its growth forecasts.

For 2013, the Bank is predicting a pick-up in growth to about 1.8%.

The chief economist at the British Chambers of Commerce, David Kern, said: “While we agree that growth will gradually strengthen from the middle of 2012 onwards, the pace of improvement is likely to prove slower than the report predicts.”

‘Painful adjustment’

Sir Mervyn said the slowdown in inflation would aid economic recovery as people’s spending power became less squeezed. Figures released on Tuesday showed that Consumer Prices Index (CPI) inflation slowed to 3.6% in January, from December’s rate of 4.2%.

Savers have seen the value of their savings eroded by inflation, and have had to suffer low returns on investments due to low interest rates.

Sir Mervyn said these people, and the millions out of work had had their spending power reduced sharply.

He said although he had “deep sympathy” for savers, increasing interest rates from their record low levels to help them could be counterproductive as it would damage the fragile economy.

“These are consequences of the painful adjustment prompted by the financial crisis and the need to rebalance our economy,” he said.

“Unfortunately there is no easy remedy.”

Sir Mervyn said times remained “challenging” for the UK economy, and there remained a number of factors that were completely unpredictable.

As well as the chance of a eurozone breakup, for which he said contingency plans were being prepared – although he would not be drawn on detail, there were other potential political flashpoints.

“Disruptions to the supply of oil, for example from Iran or Nigeria, could pose an upside risk to the inflation outlook,” he said.

Article source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-17040658

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Unemployment continues to edge up

15 February 2012
Last updated at 12:46 ET

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Jamie Jenkins, Office for National Statistics: “The north east [of England] has the highest rate of unemployment”

UK unemployment rose by 48,000 to 2.67 million in the three months to December, official figures have shown, the smallest rise in almost a year.

Women made up two-thirds of that increase and there was a new record in the number of people working part-time who want full-time jobs.

The unemployment rate edged up to 8.4%, the Office for National Statistics said, the highest for 16 years.

There was also a new record for the number of jobless young people.

The number of 16 to 24-year-olds without a job rose 22,000 to 1.04m, taking the unemployment rate to 22.2%. This figure includes young people in full-time education who are also looking for work.

The number of people claiming Jobseeker’s Allowance in January increased by 6,900 to 1.6 million.

Growth hopes

With the number of job vacancies rising to 476,000 in the three months to January, economists suggested the worsening employment outlook had eased.

“[This] supports hopes that the economy will return to modest growth in the first quarter and avoid recession,” said Howard Archer of IHS Global Insight.

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“Admittedly claimant count unemployment rose… but this is well down on the increases seen a few months ago.”

Graeme Leach, chief economist at the Institute of Directors, said: “The labour market isn’t signalling recession but it’s hardly suggesting recovery either.”

The figures came as the Bank of England published its quarterly report on inflation. It said the UK economy would “zigzag” this year, dipping in and out of growth, but avoid going back into recession.

“We are moving in the right direction,” the Bank’s governor, Sir Mervyn King, said, pointing out that the process would involve “a painful adjustment”.

‘Squeezed’ families

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Analysis

The figures suggest that women are being hit hardest by the rise in unemployment and that we are increasingly reliant on part-time jobs.

Of the 48,000 increase in the number of people becoming unemployed – 32,000 of those were women losing their jobs.

This, it’s thought, reflects the cuts to public sector jobs where more women tend to work.

Older women in particular appear to be vulnerable to losing their jobs, with the number of over 50 year-old women losing their jobs up by 20% over the past year.

The figures also suggest an increasing reliance on part-time jobs.

The number of people working part time is the highest since records began.

The number in part-time work rose by 70,000 in the past quarter. In other words the fall in full-time employment is being masked by more people taking part-time jobs.

• Wages fail to keep up with inflation
• UK economy ‘to zigzag’ this year
• Your stories: ‘I’m really scared’

Prime Minister David Cameron described the latest rise in unemployment as “disappointing”, but pointed out that the number of people in work had risen, too.

“We need to get the economy growing faster. We are rolling up our sleeves and helping people to get jobs,” he said.

Labour’s shadow chancellor, Ed Balls, accused the government of “complacency”.

“If we don’t act, we will pay a long-term price as a society because you can’t just get rid of long-term unemployment quickly.

“We saw that in the 1980s. I fear that we are making the same mistake again and I do think the government’s got to… start talking about what can be done.”

More in work

Joblessness continued to rise in all parts of the UK, apart from Wales, where it fell 3,000 to 134,000.

However, the proportion of the workforce in paid work also rose across the UK.

The number of people in jobs went up by 60,000 in the last three months of the year to 29,13 million.

This meant the employment rate rose by 0.1 percentage points in the three months to December to 70.3%.

The apparent contradiction – in the rise in both unemployment and employment – is explained by the fact that there has been a rise in the number of part-time workers and the number of people classified as economically inactive has dropped.

The inactivity number fell by 78,000 to 9.29 million. This included a drop in the number of people categorised as long-term sick or retired, who went back into the workforce.

Continue reading the main storyFull and part-time

The TUC’s general secretary, Brendan Barber, said: “With one in three jobseekers looking for work for over a year, and around six unemployed people for every job, the government’s mantra that there are plenty of jobs out there just doesn’t ring true.

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Tory MP Sam Gyimah was challenged during a Radio 5 live debate to try to live on benefits for a week

“It’s encouraging to see a small rise in employment, but this is entirely down to people taking part-time work because there are no full-time jobs available.”

That number increased by 83,000 on the quarter to 1.35 million, the highest figure since comparable records began in 1992. The TUC says this reflects the amount of people who are underemployed.

The ONS said that public sector employment had dropped while that in the private sector had gone up.

The latest available figures, for September 2011, showed that the number of people with public sector jobs fell by 67,000 from June to 5.99 million.

In the same period, the number of private sector jobs rose by 5,000 to 23.12 million.

Earnings squeezed

The ONS data also showed that average earnings increased by 2% in the year to December, unchanged from the previous month.

That figure lags well below the rate of inflation and indicates a continued squeeze on spending power.

Earlier this week, official figures showed the Consumer Prices Index (CPI) measure of inflation fell to 3.6% in January, from 4.2% in December.

Vicky Redwood, economist at Capital Economics, said: “We continue to expect unemployment to rise much further in response to the weakness in the wider economy.

“At least with inflation falling, the squeeze on real pay is easing. But it won’t be for a few months yet until real pay actually starts to rise again.”

Article source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-17039513

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Surprise jump in UK retail sales

17 February 2012
Last updated at 07:37 ET

Arcadia Group owner Sir Philip Green says discounts in January were “exceptionally aggressive”

Retail sales rose 0.9% in January compared with December, according to the latest figures from the Office for National Statistics (ONS).

The figure was much stronger than forecast as many economists had expected sales volumes to fall.

The report showed particularly strong sales of furniture and sports goods as shoppers were tempted by steep discounts.

It builds on solid December sales when volumes rose by 0.6%.

“All sectors are experiencing some growth when you look year-on-year. In particular the household goods sector has risen from where it was previously, it’s ended a long run of contraction.” said Kate Davies, head of UK retail at the ONS.

“The most prominent driver behind this growth comes from the non-store retailing sector [mail order and internet] but also from food stores and clothing stores,” she said.

But some economists say the latest figures hide deeper problems.

“January’s strong growth goes against the much more pessimistic picture painted by anecdotal evidence and all of the retail surveys.” said Samuel Tombs from Capital Economics.

“The rise was partly driven by a strong 4.8% monthly rise in household goods sales, which just seemed to be a bounce back after several months of falls. ” he added.

View from the High Street: The BBC’s Stephanie McGovern speaks to Rochdale shop owner Paul Turner-Mitchell

“And more generally, with unemployment on an upward trend, credit conditions tightening and real incomes still being squeezed, the underlying conditions for consumers are still tough.”

The figures from the ONS showed that internet sales now account for about 12% of total sales, up from 9% in January last year.

Shop prices are 2.2% higher than a year ago, the slowest rate since November 2009.

A separate report today indicated that the UK’s High Streets are seeing a high turnover of shops.

On average, Britain’s chain retailers closed 14 stores a day across the UK in 2011, according to a report from PricewaterhouseCoopers (PwC) compiled by the Local Data Company.

Electrical stores and booksellers were the hardest hit as they face the toughest competition from online retailers.

The PwC report also found that the number of charity shops, pound shops, shoe shops, bakers and convenience stores expanded last year.

That helped keep the net loss of stores down to just 174, a reduction of 0.25% on 2010.

Article source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-17071793

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