UK services growth slowest for 16 months as hiring falls

Sterling cut gains against the dollar and the euro after the downbeat services reading, which follows bigger-than-expected falls in the PMIs for manufacturers and construction, though all are still above the 50 line that divides growth from contraction.
Markit said the three surveys suggested that British GDP growth slowed to 0.5pc in the third quarter from a nine-year high of 1.2pc the quarter before.
“While a double dip recession remains unlikely, the survey suggests that the risk has increased and that growth looks set to be slow and choppy going forward,” said Markit chief economist Chris Williamson, in similar language to that used last month by finance minister George Osborne.
Almost all private sector economists believe the previous quarter’s exceptional growth was a one-off caused by weather-related disruption in the first quarter, and the key question is how fast growth slows thereafter.
A stalling recovery in the United States and hefty public spending cuts in Britain and most of the eurozone mean many economists expect quarterly growth to slow to well below a trend rate of around 0.5pc.
These fears have spread to the service sector companies in the PMI survey, which excludes retailers and public sector employers but not businesses reliant on government work.
The services PMI expectations component has barely risen from the 15-month low hit in June, and the employment component fell sharply to 46.9 from 49.7, touching a 10-month low. New business came in at its slowest pace since June 2009.
“Worries over the impact of government spending cuts and the scheduled rise in VAT early next year continued to undermine sentiment,” Markit said.
The Chancellor plans to raise value-added tax on most goods and services to 20pc in January from its current rate of 17.5pc, on top of budget cuts of 25pc to most government departments over the next four years.
However, the survey brings good news for the Bank of England, which hopes the weak economic environment will enable inflation to fall back to its 2pc target without the need for interest rate rises.
Competitive pressures and discounts to boost sales meant firms barely raised prices in August, with the increase the smallest since April. This was despite higher wage and utility bills causing firms’ costs to rise at their fastest since May.
IT and computing was the strongest sector in August, while indices for the larger ‘business services’ category declined.
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Alan Greenspan is making UK weatherman Michael Fish look like a good forecaster

Even Michael Fish (a UK weather forecaster who famously told us there was no hurricane in the offing just hours before the Great Storm of 1987) gets it more right than the former Fed boss.
Mr Greenspan’s warnings over the weekend that the US economy may be heading for a double dip smacks not just of clambering aboard the bandwagon – he’s somewhat late in his observations - but comes just four months after he cheerfully announced that the odds of a double dip “have fallen very significantly” as a result of a shortage of inventories, which he insisted would produce a “self reinforcing cycle”.
Now he says we are in a pause in a modest recovery, “but a pause in a modest recovery feels like a quasi-recession”. I shouldn’t mock, for my own forecasting record is if anything even worse, but in March 2007, Mr Greenspan said there was only a one third chance of a recession, only to raise this to a greater than 50pc chance in May 2008.
Starting to get it right, then? Unfortunately he then spoilt this rare insight into the blindingly obvious by saying that prospects of a severe recession had receded markedly. As we know, the worst recession since the Great Depression followed soon afterwards.
In November 2006 he referred to the economic slowdown as “likely temporary”, and in June 2007 he said that China was a bubble and that a “dramatic contraction is coming”. For all his wisdom and experience, Mr Greenspan doesn’t seem to have learned the first lesson of forecasting – it’s a mug’s game.
Central bankers are required to take a view, but in fact they might do better simply to react to the world as it is than as they think it will become. Paying more attention to the present while he was at the Fed might have alerted Mr Greenspan to out of control credit and the need to reign it in. Throughout much of his time at the Fed he did the reverse.
Mr Greenspan’s all absorbing mission since then has been to defend his legacy, and to the extent that he admits to getting it wrong at all, to insist this was all a perfectly sensible approach to policy at the time.
He’s not alone. Most central bankers will still claim that accommodative monetary policy played little if any part in causing the crisis, or alternatively that they had no option but to adopt such a stance, for to do otherwise would have induced a recession.
Both Ben Bernanke, the present Fed chairman, and Mervyn King, Governor of the Bank of England, argue that it was widening trade imbalances and associated capital flows which were the root cause.
A recent paper by the International Monetary Fund, “Central Banking Lessons from the Crisis”, is ambiguous in its conclusions. Citing recent research, it finds only limited evidence that overly accommodative interest rate policy fuelled the bubble in individual countries, but stronger evidence that the global climate of loose money did have a significant effect. In other words, this was not just about failures in banking supervision. Central bankers were part of the mischief.
Next week marks the third anniversary of the start of the credit crunch. Aside from Mr Greenspan’s propensity to get it wrong, what have we learnt from the dramatic events of the last three years?
The fashionable view is nothing at all. The banks generally survived – witness renewed buoyancy in profits announced by HSBC yesterday - and with some success, are now busy neutering the reform agenda. Trade imbalances are almost as bad as they were at the peak three years ago, and far from trying to reign in credit, policy is hell bent on re-stimulating it.
All these things are in part true and no doubt entirely reprehensible. Only last week, I wrote at length about the absence of progress in correcting trade imbalances. There is meanwhile a sense in which the bankers have “got away with it” and are already back to their old tricks. Yet the reality is that this absence of change is part of the price that has to be paid for avoiding a depression.
If banks hadn’t been rescued, there would have been a perhaps more satisfying process of Darwinian liquidation in finance, but it would also have destroyed savings and jobs on a profoundly more destabilising scale.
As it happens, quite a bit of the old banking system has indeed disappeared, and, to the chagrin of the policymakers who seem to want to return to the let-rip lending practices of the past, there have been significant behavioural changes in credit provision and trading practices.
In many cases there has also been a complete clearout of top management. Liquidity pools have been expanded and leverage reduced. Debt aversion may not be good for demand, but it is surely more healthy in the long term than the credit fuelled consumption of the last decade.
To impose stringent new capital controls on the banks now while balance sheets remain impaired would only further damage credit to the economy. It is right that there should be a prolonged transition period. The presiding policy objective should be to tighten in the boom and loosen in the bust. Central banks have learned that lesson at least.
The long-term reform agenda is certainly being compromised by national differences, populist irrelevance, divide and rule lobbying and excessive complexity, but let’s see where we end up before declaring that the bankers have won.
As for the economy, the chances of a significant double dip, in the US at least, have risen in recent weeks, and we know that return to full employment is going to be long and hard. On the other hand, growth is much better than anyone anticipated a year ago.
No change? In fact an awful lot has changed, though it may take time to become fully apparent. Perhaps regrettably, there is one thing that can be relied on to provide continuity in an uncertain world - Mr Greenspan’s guesswork.
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Budget 2010: Stronger public finances fuel optimism ahead of Budget

The Chancellor will outline the deepest spending cuts in a generation on
Tuesday to address the nation’s budget deficit, which at 11pc has hit a
post-War high. Public sector pay and pensions are expected to suffer steep
cuts while banks face new taxes and VAT may rise from 17.5pc to 20pc.

Mr Osborne hopes to grapple with the deficit before it damages the sovereign
credit rating. The upbeat news fuelled hopes that the economic recovery is
bedding in, pushing up the price of Government debt and sending the yield on
10-year gilts 6 points lower to 3.54pc.

Separate data from the Bank of England helped buoy confidence further. Lenders
are continuing to extend credit to small businesses, the Bank said in its
monthly Trends in Lending report, although overall business borrowing
continued to shrink, at a reduced rate of £400m in the month.

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BP oil spill: British companies fear backlash in America

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Mr Cable was reluctant to comment further amid signs that the Government is
increasingly concerned
about the scale of the US reaction and fears that BP could be
severely damaged by “punishment sanctions” under consideration in
Washington.

The loss of government contracts for example would be a major blow. BP is the
biggest supplier of oil and gas to the US military and the loss of a $2bn
(£1.4bn) business would be a bonus for US rivals. Their early attempts to
provide a united front with BP against the tidal wave of criticism are said
to be weakening as they assess the implications of a standstill on an
expansion of offshore drilling as the price for the Gulf disaster. Exxon
Mobil and Chevron deny they are involved in anti-BP lobbying but analysts
point out they have much to gain if BP’s operations in the US are curbed.

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Marks and Spencer proclaims the worst of the recession is over as it rings up £632m profit

By
Daily Mail Reporter
Last updated at 3:52 PM on 25th May 2010

M&S turns around 40 per cent plunge in profits Britain’s economy expands faster than expectedManufacturing hits highest monthly
growth for 8 years Marks & Spencer claimed today that the ‘worst effects of the recession’ were now over as it confirmed a return to annual profits growth after reporting a 4.6 per cent hike to £632.5 million.An impressive fourth quarter of sales growth helped the group notch up the underlying pre-tax profits haul, which marked a turnaround on the 40 per cent plunge the previous year.In presenting his last set of annual results, M&S chairman Sir Stuart Rose said the ‘worst effects of the recession’ were now over, but warned over consumer jitters ahead of the emergency Budget on June 22.The strong growth at M&S helped underline new figures released today that showed Britain’s economy expanded at a faster pace than first
thought with
growth of 0.3 per cent in the first quarter of the year.
Back in business: M&S chairman Sir Stuart Rose said today the ‘worst effects of the recession’ were now overThe Office for National Statistics (ONS)
revised up its estimate for growth of gross domestic product (GDP) in
the first quarter from an initial lacklustre 0.2 per cent.Strength
in the manufacturing sector helped put the recovery on a firmer
footing, with industrial production growth upgraded to 1.2 per cent
from the 0.7 per cent reported last month.
Today’s figures showed no upward revision to the 0.2 per cent growth
from the key services sector, which accounts for more than 70 per cent
of GDP.But a revival in the manufacturing industry lent some
much-needed support, with recent data showing the highest monthly
growth for nearly eight years in the sector.The contraction in
the hard-hit construction sector was also marginally better than first
feared, revised to minus 0.5 per cent compared with a drop of 0.7per
cent in the initial estimate.

While the improvement in GDP is still down on the 0.4 per
cent growth seen in the final quarter of 2009, it offers hopes for the
otherwise stuttering economic recovery.

Economists had expected quarter-on-quarter growth to be revised up to
0.3 per cent and said there was the potential for further revisions if
the service sector is nudged higher in future estimates.The rise in profits at M&S provides an early boost for new chief executive Marc Bolland, who joined from rival Morrisons earlier this month.Sir Stuart - who is now non-executive chairman and plans to stand down next March - said M&S had also seen a ’satisfactory start’ to the new financial year.However, he added: ‘Consumers are naturally concerned about any impact of the Budget on June 22. We therefore remain cautious about the outlook for the year ahead.’M&S saw UK sales lift 0.9 per cent over the year after a far-better-than-expected 5.1 per cent rise in same store sales during the final quarter.The group’s improved financial performance has seen the group share out an already-announced £81 million bonus pot among employees, including 50,000 store staff.M&S drove like-for-like food sales higher for the first time since the summer of 2007, up 0.3 per cent, helped by promotions such as the ‘Dine in for £10′ deals.General merchandise sales rose 1.6 per cent and the group claimed to have stolen market share in the clothing sector.It said shoppers were becoming more confident in their spending on wardrobes and were forking out on ‘investment pieces’ such as coats and leather boots.’We responded to this trend by increasing the proportion of our higher priced ranges,’ said M&S.The group’s full-year performance is still a long way from the £1 billion in profits recorded in the year to March 2008, highlighting the impact of the recession on M&S.But it has led a revival in recent months, with the fourth- quarter sales rise its second quarter of growth in a row following two years of declines.On a 53-week basis and including Easter, underlying profits rose to £694.6 million in the year to April 3.Sir Stuart said he was working with new chief executive Mr Bolland to ensure a ’smooth transition’ and confirmed he would help the board find his successor to the chairman’s role.But Mr Bolland has already had an eventful start at the group, with news that finance director Ian Dyson is to join Punch Taverns announced just a day after he joined.Sir Stuart shrugged off double-dip recession fears and said he believed the UK was in line for ’steady growth’.But he expected the upcoming Budget to be tough on businesses as the Government seeks to cut Britain’s debt levels, adding: ‘We all have to take our medicine.’The search for his successor is ‘well under way’, according to Sir Stuart.He hinted he may leave earlier than next March if a replacement is appointed sooner, although Sir Stuart stressed he would stay as long as needed.Mr Bolland is currently on a three-month handover with Sir Stuart, after which time he will begin a review of the group and report back at interim results in the autumn.M&S shares slipped 2 per cent as heavy falls in the wider market offset the group’s annual results, which came in at the top end of market expectations.Matthew McEachran, analyst at Singer Capital Markets, said M&S had given hope that its fourth-quarter sales results were not just a ‘flash in the pan’.However, he said: ‘Marc Bolland will need to draw on all his management skills to improve sentiment towards the company at a time when consumption trends come under pressure again.’

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UK manufacturing grows strongly

UK manufacturing activity grew at its fastest for 15 years in March, according to a closely-watched survey.The purchasing managers’ index (PMI) rose to 57.2 last month, from 56.5 in February, and was ahead of analysts’ forecasts. It was the best monthly growth figure since October 1994. The UK data was matched by the release of similar surveys showing faster manufacturing growth in the 16-country eurozone and China. The survey, from Markit and the Chartered Institute of Purchasing and Supply, also found that new order growth in the UK was near a six-peak. Hopes raisedRob Dobson, senior economist at Markit, said: “The rebound is coming from a broad base by sector and company size, raising hopes that this will prove sustainable.” The PMI is calculated from data on new orders, production, employment, and purchasing. An index reading above 50 indicates that activity is rising. Anything under 50 shows contraction. Export order growth fell from February’s high, but the survey found that sterling’s weakness was still benefiting UK exporters. On Tuesday, the Office for National Statistics revised up its forecast of economic growth for the final quarter of 2009, saying that the economy grew by 0.4%. Interest rate fearsPMI surveys released for other economies showed that manufacturing output within the eurozone grew at its fastest pace in over three years last month. The index leapt to 56.6 from 54.2 in February. Germany, the eurozone’s largest economy, saw its best manufacturing growth for almost 10 years in March, rising to 60.2 from 57.2 in February. France, the second-biggest economy in Europe, saw its manufacturing sector expand at a pace not seen since November 2006. China’s huge manufacturing industry also continues to grow. Its PMI rose to 55.1 in March, from 52.0 a month earlier, a sharp rise that is likely to heighten concerns that Beijing may be forced to raise interest rates over the coming months.

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UK economic growth revised upwards

The UK economy emerged from recession in the fourth quarter of last year at a faster pace than previously estimated, official figures have shown.Data from the Office for National Statistics said the economy grew 0.4% between October and December in 2009. This was faster than the previous estimate of 0.3% growth during the quarter. The ONS said the upward revision was due to higher output from business services, construction and agriculture. For the year 2009 as a whole, GDP contracted by 4.9%, the ONS said. The previous estimate had been for a contraction of 5% over the year. GDP in 2008 grew 0.5%. BumpyHoward Archer, analyst at IHS Global Insight, said the GDP figures were “obviously a very welcome development”. “It suggests that the economy ended last year with a little bit more momentum than previously thought,” he said. “But it still doesn’t fundamentally change our view that recovery is likely to be gradual and bumpy going forward.” The government’s temporary cut in VAT and introduction of the car scrappage scheme have in part helped the growth figures.

Another upward revision to economic output in the final quarter of last year brings the figure to where many analysts thought it should have been all along. The initial estimate of 0.1% seemed surprisingly low at the time. New data coming into the ONS has proved the point. The end-of-year deadline for the VAT increase pulled forward consumer purchases and the key question now is what the growth picture turns out to be for the first quarter of this year. January’s harsh weather won’t have helped. All eyes will be on the first estimate, to be published on 23 April - not far off a likely general election date.

But analysts said the better-than-expected data was also due to companies re-stocking at the end of 2009 after running down their inventories at the height of the recession. However, government stimulus and the benefits of re-stocking will eventually slow, which is why analysts remain cautious about the economic outlook. Jonathan Loynes, economist at Capital Economics, said the headline GDP numbers were good news. But he warned: “There are some less encouraging aspects to the figures too. Growth in Q4 was still heavily reliant on public spending and inventories, both areas which are likely to be weaker in coming quarters. “Overall, some welcome news. But the big picture of a fragile and unbalanced recovery is unchanged,” he said. Separate figures showed Britain’s current account deficit narrowed by more than expected over the quarter to £1.684bn from £5.912bn, the lowest since the first quarter of 2008.

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US economy grows at fastest rate in six years

America’s economy has grown at its fastest pace in the past six years. The
US recorded growth of 5.6 per cent in the fourth quarter, down from a
previous estimate of 5.9 per cent.

It compares with growth of 2.2 per cent in the third quarter of last year,
when the world’s biggest economy was lifted out of four consecutive quarters
of contraction.

However, the figures for the full year’s GDP were unchanged, showing a 2.4 per
cent decline, the biggest 12-month fall since the 10.9 per cent recorded in
1946.

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America picks up the pace of recovery amid hopes for rising employment

Economic growth in the United States surged in the final three months of last year at its fastest rate for six years, lifting hopes that employers could begin to hire staff.
The 5.7 per cent rise in estimated gross domestic product (GDP) from the Commerce Department, better than expected, was followed by other positive economic data, but nevertheless it was insufficient to give a significant lift to markets, which have begun to fall since hitting a ten-month high last week.
The Institute for Supply Management-Chicago said that its business barometer had risen to 61.5 in January, the highest in four years, from 58.7 in December.
In a further boost to recovery hopes, the Reuters/University of Michigan Survey of Consumers’ consumer confidence for January rose above expectations to 74.4, from 72.5 in December.

For the full year of 2009, GDP fell by 2.4 per cent, marking the biggest full-year decline since the 10.9 per cent recorded in 1946. The change from the first quarter of 2009, when GDP fell at an annual rate of 6.4 percent, was the largest three-quarter swing in growth rates since 1981.
The fourth-quarter surge suggests that a sustainable recovery is building. It follows an increase of 2.2 per cent in September, when the world’s biggest economy left recession after four quarters of contraction and the worst downturn since the Great Depression of the 1930s.
The Commerce Department said that growth had been driven in large part by a 3.4 percentage point contribution from inventories, as businesses cut back less aggressively on their stock and fewer companies liquidated their inventories to address poor demand.
Nigel Gault, chief US economist at IHS Global Insight, said that the best news in the data was on exports (up 18.1 per cent) and business spending (up 13.3 per cent). “The improving trend in capital goods orders suggests more gains in equipment spending ahead. If firms are feeling confident enough to raise their equipment spending, they’re probably confident enough to start hiring again,” he said.
However, he said that an inventory swing of the size seen at the end of 2009 could occur only once. “Growth is likely to be subdued by historical standards, in the 2.5 to 3.0 per cent region for 2010,” he said.
Christina Romer, chair of President Obama’s Council of Economic Advisers, said that the data represented “the most positive news to date on the economy.” However, she said that the focus must remain on getting Americans back to work.
The number of unemployed people now stands at 15.3 million, giving an unemployment rate of 10 per cent, compared with 7.7 million and 5 per cent at the start of the recession in December 2007.
President Obama vowed in his State of the Union address on Wednesday to make job creation his top priority. Although government figures out this week showed a fall in the number of Americans filing for initial unemployment insurance to 470,000 last week from 478,000 a week earlier, Americans remain concerned about job prospects.
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Weak growth adds to Bank’s dilemma on quantitative easing

Published: 10:32PM GMT 26 Jan 2010

Alistair Darling, not surprisingly, managed to take some comfort in the
figures declaring that “there are many reasons to be confident”.

The markets displayed anything but confidence: the pound fell and gilt futures
jumped as traders concluded that prospects for an interest rate rise before
the end of the year were fading. Bad news for beleaguered savers, which have
already been hit hard by the Monetary Policy Committee’s (MPC) attempts to
kickstart the economy.

Ahead
of yesterday’s announcement even the most bearish economist had been
forecasting a 0.2pc rise – according to Bloomberg – with most
expecting GDP to have risen by 0.4pc.

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