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The UK economy: a lacklustre fourth quarter but signs of a post-election bounce

Date: 27th January 2020

The UK economy: a lacklustre fourth quarter but signs of a post-election bounce
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses recent UK data and survey material:
    • The data for November’s GDP (down 0.3% (MOM)) and December’s retail sales (down 0.6% (MOM)) were disappointing, pointing to a lacklustre 2019Q4.
    • Despite this, the labour market has remained fairly robust. In the three months to November, the unemployment rate remained at 3.8%, the lowest for 45 years, whilst total real earnings were 1.6% higher YOY.
    • Recent surveys suggest a post-election improvement in confidence, which should lead to a pick-up in activity. In particular, the Markit/CIPS flash composite output index for January bounced and was the highest for almost one-and-a-half years.
    • Inflationary pressures remain well contained, whilst the housing market picked up slightly in November before the election. The latest RICS survey concluded that sentiment in the housing market had improved since the election.
    • Public borrowing in December 2019 (£4.8bn deficit) was a tad better than in December 2018 (£5.0bn deficit), but cumulative borrowing for April-December 2019 (£54.6bn) is still running ahead of April-December 2018 (£50.6bn). However, it is not deteriorating as quickly as the OBR expected at the time of the March 2019 Budget, which is helpful for the forthcoming Budget on 11 February.
    Central Banks Watch:
    • The MPC’s next monetary policy announcement is on 30 January. Expectations of a cut in Bank Rate from 0.75% to 0.5% weakened after the release of the labour report and the Markit/CIPS flash composite output index.
    • The ECB left monetary policy unchanged at their 23 January meeting.
    • The Fed is expected to leave interest rates unchanged at their meeting (28-29 January).
    International perspectives:
    • The World Bank sees a very modest rebound in growth in 2020, depending on an improvement in some large emerging and developing economies (EMDEs).
    • The IMF was more optimistic, projecting world GDP growth of 2.9% in 2019, followed by an acceleration to 3.3% in 2020 and 3.4% in 2022.
    • The US and China signed the “phase one” trade deal in January 2020, marking a “truce” in their “trade war”.
    Concerning Brexit developments:
    • The European Union (Withdrawal Agreement) Bill received the Royal Assent on 23 January.
    • Ursula von der Leyen (Commission President), Charles Michel (President of the European Council) and PM Boris Johnson signed the Withdrawal Agreement on 24 January 2020.
    • The European Parliament is expected to ratify the Withdrawal Agreement on 29 January, two days ahead of Brexit Day (31 January 2020).

    Ruth Lea said, “Granted the data for November’s GDP and December’s retail sales point to a stagnant 2019Q4, but other data, not least all the fairly robust labour market report, showed the underlying economy was far from entering recession. Moreover, recent survey material have suggested a pick-up in business and housing market activity following the general election. In these circumstances, there is no need for the MPC to cut the Bank Rate. Indeed, it should not, keeping a little firepower for the future. Moreover, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.75% at its last meeting (ending on 18 December 2019), so at least three MPC members would have to switch from holding rates to a cut for a cut to be agreed next week. On balance, this does not seem likely.”

For full story: http://www.dannyshi.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
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