Bcc monthly economic briefing september 2015

Monthly Economic Review September 2015 (Based on August 2015 data releases)

Monthly headlines:  UK economic growth in Q2 unrevised, as the trade deficit narrows and investment rises.  UK unemployment rises again, but earnings continue to outstrip inflation.  US growth is revised up sharply, but China weighing heavily on the global outlook. .UK GDP growth in Q2 unrevised at 0.7%...

06/09/2015

104

Q1=2008

102 100 98 96 94

Real GDP GDP per head

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

92

Source: ONS Second GDP estimate, Q2 2015

Chart 2: UK Trade Balance 0 -2 -4 -6 -8 -10 -12 -14 -16 -18

2015 Q2

2014 Q4

2014 Q2

2013 Q4

2013 Q2

2012 Q4

2012 Q2

2011 Q4

2011 Q2

2010 Q4

2010 Q2

2009 Q4

2009 Q2

2008 Q4

2008 Q2

2007 Q4

2007 Q2

2006 Q4

2006 Q2

2005 Q4

2005 Q2

-20

Source: ONS Second GDP estimate, Q2 2015

Chart 3: Changes in UK Job Vacancies 800 700 600 500 400 300 200 100 0

Apr-Jun 2001 Oct-Dec 2001 Apr-Jun 2002 Oct-Dec 2002 Apr-Jun 2003 Oct-Dec 2003 Apr-Jun 2004 Oct-Dec 2004 Apr-Jun 2005 Oct-Dec 2005 Apr-Jun 2006 Oct-Dec 2006 Apr-Jun 2007 Oct-Dec 2007 Apr-Jun2008 Oct-Dec 2008 Apr-Jun 2009 Oct-Dec 2009 Apr-Jun 2010 Oct-Dec 2010 Apr-Jun 2011 Oct-Dec 2011 Apr-Jun 2012 Oct-Dec 2012 Apr-Jun 2013 Oct-Dec 2013 Apr-Jun 2014 Oct-Dec 2014 Apr-Jun 2015

...and while the UK jobs market weakens...

In the three months to July 2015, UK unemployment rose by 25,000 compared with the previous three months. The number of people in employment fell by 63,000 over the same period. There were 735,000 job vacancies in the three months to July 2015, the second highest number since records began in 2001 (see Chart 3). This mirrors the Q2 2015 Quarter Economic Survey where recruitment difficulties in the manufacturing sector reached a record high.

However, despite this, the UK’s labour market remains a source of strength for the UK economy.

106

Billions £

...with growth better balanced in the quarter...

The UK's trade deficit narrowed from £13.4 billion in Q1 2015 to £9.1 billion in Q2 2015, the lowest deficit since Q2 2013 (see Chart 2). This was driven by a 3.9% rise in exports in Q2, almost seven times the 0.6% increase in imports over the same period. As a consequence, trade boosted GDP by one percentage point in Q2, its biggest contribution since Q4 2011 and is in marked contrast to the previous quarter when net trade was a drag on growth. Business investment rose by 2.9% compared with the Q1 2015, the biggest rise since Q2 2014.

Chart 1: UK Real GDP vs GDP per head

000's

The second official estimate for Q2 2015 growth in UK GDP was unrevised at 0.7%, compared to the 0.4% rise recorded in Q1. In annual terms, the UK economy grew by 2.6% in Q2, unrevised from the previous estimate. UK economic output is now over 5% above its Q1 2008 pre-recession peak. However, GDP per head, a key indicator of living standards, remains just below its pre-recession peak, despite rising by 0.5% in Q2 2015 (see Chart 1). Overall, the latest GDP figures mirror our view that the UK economy is expanding at a solid rate.

BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk

Source: ONS Retail Sales, December 2013 Source: ONS UK Labour Market Indices, July 2015

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06/09/2015

4 3

%

2 1

Apr-Jun 2015

Jan-Mar 2015

Jul-Sep 2014

Oct-Dec 2014

Apr-Jun 2014

Jan-Mar 2014

Jul-Sep 2013

Oct-Dec 2013

Apr-Jun 2013

Jan-Mar 2013

Jul-Sep 2012

-3

Oct-Dec 2012

Apr-Jun 2012

Jan-Mar 2012

Jul-Sep 2011

Oct-Dec 2011

Apr-Jun 2011

Jan-Mar 2011

Jul-Sep 2010

Oct-Dec 2010

Apr-Jun 2010

Jan-Mar 2010

Jul-Sep 2009

Oct-Dec 2009

-2

Apr-Jun 2009

0 -1

Real earnings growth Annual earnings growth CPI inflation

-4

Source: ONS Labour Market Statistics, August 2015

Chart 5: Retail Sales 8 6 4 2

Jun-15

Dec-14

Jun-14

Dec-13

Jun-13

Dec-12

Jun-12

Dec-11

Jun-11

Jun-10

-2

Dec-10

0

-4 Source: ONS Retail Sales, July 2015

Chart 6: UK Public Sector Net Borrowing 8 6 4

2015 Jul

2014 Jul

2013 Jul

2012 Jul

2011 Jul

2010 Jul

2009 Jul

2008 Jul

-2

2007 Jul

0

2006 Jul

2

2005 Jul

...but cutting the deficit remains a challenge.

Public sector net borrowing, excluding public sector banks, recorded a surplus of £1.3 billion in July 2015, the first July surplus since 2012 (see Chart 6). July tends to be a strong month for the public finances, due to the timing of corporation tax and selfassessment payments. The improvement in July 2015 was largely due to higher tax receipts, which was 4.5% higher than last year's figure. Despite the progress in reducing the UK’s fiscal deficit we have some seen in recent months, public sector net debt, at 80.8% of GDP in July 2015, remains more than double pre-crisis levels.

5

Annual change %

...will help to support UK growth in Q3...

Retail sales rose by 0.1% in July. The biggest growth in sales were in electrical goods and furniture, both of which were up almost 20% on the month and suggests that the greater spending power enjoyed by + consumers in recent months (see Chart 4) is encouraging shoppers to purchase big ticket items. In annual terms, retail sales increased by 4.2%, the 28th  consecutive month of growth (see Chart 5). Average store prices fell by 3.0% in July 2015 compared with July 2014. Overall, the latest retail sales figures indicate that the pace of growth in the UK is likely to remain strong in Q3.

Chart 4: Real Earnings Growth 6

Billions £

...strong real wage growth...

CPI inflation rose from 0.0% in June to 0.1% in July. A smaller fall in clothing prices on the month, compared with a year ago, was the main contributor to the slight rise in inflation. However, despite this increase, the UK remains in a period of very low inflation, and with annual earnings growth, excluding bonuses, rising by 2.8% in the three months to June 2015, real earnings continue to rise at a solid pace (see Chart 4).With two-thirds of UK GDP driven by consumer spending, the rise in real earnings and therefore consumer's spending power will continue to support growth.

-4 -6 -8

BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk

Source: ONS Public Sector Finances, July 2015

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…China remains a major concern.

Despite cutting interest rates and devaluing their currency to make their exports more competitive, concerns over the outlook for the Chinese economy persist with stock prices falling by 16% over the past month. China’s standing as the world's secondbiggest economy (see Table 1) and accounting for around a quarter global GDP growth means that uncertainty over its outlook is starting to weigh on the global economy. Global stock prices dropped over the past month with UK stock prices declining by 10%, amid fears over a prolonged slowdown in China.

0.8

0.4 0.2

2015Q2

2015Q1

2014Q4

2014Q3

2014Q2

2014Q1

2013Q4

2013Q3

2013Q2

2013Q1

2012Q4

-0.2

2012Q3

0

2012Q2

Quarterly Change %

0.6

-0.4

Eurozone

-0.6

UK Source: Eurostat

Chart 8: UK vs US GDP Growth 6.0 4.0 2.0

2015Q2

2014Q4

2014Q2

2013Q4

2013Q2

2012Q4

2012Q2

2011Q4

2011Q2

2010Q4

2010Q2

2009Q4

2009Q2

2008Q4

2008Q2

2007Q4

2007Q2

2006Q4

2006Q2

-2.0

2005Q4

0.0

2005Q2

...and US growth is revised up sharply...

The second estimate of US GDP revealed that the US economy grew at an annualised rate of 3.7% in Q2 2015 (see Chart 8), up from the first estimate of 2.3%, and more than six times the growth of 0.6% recorded in Q1. The upgrade partly reflected a 3.2% rise in business investment in Q2, up from an earlier estimate of a 0.6% decline. Consumer spending, which accounts for more than two-thirds of US GDP, was upwardly revised to 3.1%, from the previous estimate of 2.9%. A strong jobs market and weak inflation, is helping to support consumer spending in the US.

Chart 7: UK vs Eurozone GDP growth 1

Annual change %

While the Eurozone continues to grow...

The Eurozone economy grew by 0.3% in Q2 2015.

Although this was down slightly from the growth of  0.4% in the previous quarter, it was still stronger than the average growth of 0.2% per quarter in 2014 (see Chart 7). In annual terms, the Eurozone economy grew by 1.2% in Q2. Germany's economy, the biggest in the Eurozone, grew by 0.4% in Q1 2015, up from 0.3% growth in Q1. Economic growth in Greece picked up sharply, rising by 0.8% in Q2, after recording zero growth in the previous quarter. In contrast, France's economy did not grow at all in Q2, compared to the growth of 0.7% recorded in Q1.

-4.0

US

-6.0

UK

-8.0 -10.0

Sources: ONS, BEA

Table 1: Ten Largest Economies (by GDP, current prices) 2014 USA

$17,419

China

$10,380

Japan

$4,616

Germany

$3,860

UK

$2,945

France

$2,847

Brazil

$2,353

Italy

$2,148

India Russia

$2,050 $1,857

Source: IMF

Bottom line: Last month’s data releases confirm that the UK economy continues to perform well. However, global uncertainties, intensified by the current state of play in China, reinforces the case for keeping UK interest rates at their current level until well into next year.

For more information please contact: Suren Thiru, UK Economic Advisor. Email: s.thiru@britishchambers.org.uk. Tel: 020 7654 5801 06/09/2015

BCC Monthly Economic Review – for information visit: www.economicsurvey.org.uk

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Economic summary chart Deteriorating Sector Household

Indictors (sources) Retail Sales (ONS) Consumer Confidence (GfK NOP) House Prices (Halifax) New car sales (SMMT)** Mortgage approvals (Bank of England)

Business

Business confidence (BCC)*** Business lending (Bank of England) Service sector output (ONS) Production output (ONS) Investment intentions (BCC)**

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

No change Jun-15

Jul-15

Improving Aug-15

Sep-15

Labour market Employment (ONS) Unemployment (ONS) Claimant count (ONS) Earnings (ONS) Economic Inactivity (ONS) Government

10 year Government bonds (Bloomberg) Public sector net borrowing (ONS)** Public sector net debt % of GDP (ONS)** Tax receipts (ONS)** Current Budget Deficit (ONS)**

External

UK trade balance (ONS) Exchange rate (Bank of England) Export Sales (BCC)*** Export orders (BCC)***

Global

US GDP (BEA)**** US unemployment (BLS) Eurozone GDP (Eurostat)**** Eurozone Unemployment (Eurostat) China GDP (Oxford Economics)

*Colours indicate an improvement or deterioration of each indicator and refer to monthly changes unless stated. For example, an improvement in employment refers to an increase, while an improvement in unemployment refers to a fall. Also a depreciation in the exchange rate refers to an improvement and an appreciation in the exchange rate refers to a deterioration. Dates refer to the release dates for each indicator. **Annual changes. ***Quarterly changes. ****Latest figures are estimates.

06/09/2015

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