Global markets rise despite mixed signals in US and UK

The gains were made despite a survey which showed slowing growth in UK services activity and signalled that recovery in the wider economy is on course to slow in the third quarter.
The closely watched Markit/CIPS services purchasing managers’ index slipped to 51.3 in August from 53.1 in July, which was the lowest level since April 2009 when the sector first returned to growth. Any number above 50 indicates expansion. It was a bigger fall than economists had predicted and reflected reports of reduced market confidence. It echoed the manufacturing and construction PMIs published earlier in the week, which also signalled a slowdown in recovery in those sectors.
Based on the three surveys combined, Markit said the UK economy was likely to grow by 0.5pc in the third quarter compared with the second, when gross domestic product increased by 1.2pc.
Chris Williamson, chief economist at Markit, said the services sector, which accounts for about three quarters of the UK economy, was struggling to sustain momentum after a buoyant second quarter.
“Confidence about the year ahead has failed to recover from June’s record drop, with public sector spending cuts and the looming VAT hike in January creating uncertainty over the future direction of the economy,” he said.
“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.”
Meanwhile in New York, investors voiced relief that the keenly-anticipated jobs report for August was better than many had feared. While the world’s largest economy lost jobs overall, private employers actually hired 67,000 workers. And in another brighter note for markets that have endured a diet of poor economic news over the summer, the number of jobs created by the private sector in July was revised upwards to 107,000.
The recession cost 8.5m jobs in the US and the unemployment rate has remained stubbornly high, despite the economy having begun to grow again. “Double-dip fears will dissipate on the back of this result,” said Rob Carnell, an economist at ING.
The recovery’s loss of momentum over the summer has increased the pressure on President Barack Obama to do more to accelerate growth. With key Congressional elections just two months away, voters’ approval of his handling of the economy is at a record low.
He insisted yesterday that there’s “no quick fix” for the economy, but that he would be outlining a new set of measures next week that are designed to help. With unemployment the political flashpoint, they are reported to include a temporary suspension of a tax employers pay when hiring people.
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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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COMMENT by ALEX BRUMMER: Why cutting is good for you

By Alex BrummerLast updated at 10:31 PM on 2nd September 2010

The ‘deficit deniers’ - the politicians and economists who think that George Osborne and the coalition have embarked on the wrong path with their ferocious cuts in public spending - could do worse than listen to the International Monetary Fund.
Sure, it is possible that the robust second quarter recovery in the UK could fizzle under the strain of consumer angst about public sector cuts. But the alternative of doing nothing about the bloated size of government could lead to even worse outcomes, similar to the so-called lost decade of growth in Japan.
An IMF paper on trends in public finance nails claims made by Labour that the budget deficit is not structural and will vanish like mist in the autumn sun once growth returns.

Surge: Britain’s post-crisis deficit stands at 90 per cent of GDP, according to IMF estimations

The data shows that across the G7 rich nations, new ‘primary spending’ - largely on health care and pensions - accounts for a large part of the surge in deficits and debt.
Britain, it argues, was able to hold its debt lower when we were expelled from the exchange rate mechanism because debt service payments fell dramatically.
 

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US companies find it tougher to squeeze more from staff

In data out on Thursday, the US Labour Department cut its estimate for how productive workers were in the second quarter of the year, a period which saw the economy begin to lose momentum. The measure of employee output per hour declined at an annual rate of 1.8pc, twice as steeply as an initial estimate and the biggest drop in four years.

The number of Americans signing on for jobless benefits reached 472,000 in the week ending August 28, separate figures showed. Though it’s a small improvement on the 478,000 of the week before, it remains above the year’s 463,000 average and, according to economists, gives little reason to hope for a quick rebound.
Financial markets are braced for more gloomy news from the labour market on Thursday, with the release of the widely-watched monthly employment report. A further 100,000 jobs are expected to have been lost in August, with the majority coming from the end of a blitz of temporary hiring by the government.
However, the US housing market did offer some unexpectedly brighter news yesterday. The National Association of Realtors’ index that measures the sales of homes that have already been sold once before climbed to 5.2pc in July after a drop of 2.8pc the month before.
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House prices fall: August sees slump for second consecutive month

By Daily Mail ReporterLast updated at 11:11 AM on 2nd September 2010

There are fresh fears for housing market today after property prices fell for the second consecutive month for the first time since February 2009.
Prices dropped by 0.9 per cent during August following July’s slide of 0.5 per cent, according to Nationwide Building Society.
The annual rate of change also weakened for the fourth consecutive month to stand at 3.9 per cent, the lowest year-on-year rise since November last year.
Trapped; Those who bought a home at the peak of the market in 2007 will remain in negative equity until 2014, according to a new report

The gloomy figures come just days after economists warned that the housing market could be heading for a double dip.
Figures from the Bank of England released earlier this week showed that only 48,722 mortgages were approved for house purchase during July, a level that economists consider to be consistent with house price falls.
Nationwide said the quarter-on-quarter growth rate, generally seen as a smoother indicator of market trends, had fallen to 0per cent during the three months to the end of August, suggesting that house prices had stagnated during the summer.
 

It warned that unless house prices bounced back strongly in September, the quarterly growth rate was likely to turn negative next month.

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Housing market ‘double dip’ fears as mortgage lending crashes to new low

By Daily Mail ReporterLast updated at 3:54 PM on 31st August 2010

Net lending second lowest figure ever recorded
Prices could fall 3% during the second half of this year
House prices to drop around 5 per cent next year
Confirmation housing market is heading for ‘double dip’
There were new fears for the state of the UK housing market today after mortgage lending dived to the second lowest figure ever recorded.
Lending fell sharply in July as activity in the housing market remained subdued, new figures showed.
Net lending, which strips out redemptions and repayments, totalled just £86 million during the month - a steep fall from June’s £518 million, according to the Bank of England.
The figure was the second lowest since the Bank’s records began in 1993, although there have also been two months when net lending was negative.

Double dip fear: Experts say house prices could to fall by around 3 per cent during the second half of this year, followed by a drop of around 5 per cent in 2011.

The number of mortgages approved for house purchase edged ahead only slightly during the month, rising to 48,722, well down on the levels of more than 100,000 a month seen during the housing boom.
The figure was also down on November’s recent high of just over 59,000, as the housing market failed to benefit from its traditional summer bounce.
The subdued lending figures have added to concerns among economists that the housing market is heading for a fresh round of price falls.
 

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UK mortgage approval rise but total lending weakest since March

Mortgage approvals numbered 48,722 in July, up from an upwardly revised 48,562 in June. Analysts had forecast a reading of 46,500.
Economists were sceptical about reading too much into the rise in approvals.
Vicky Redwood, of Capital Economics, said: “The news on the UK housing market doesn’t get any better … The best that can be said is that approvals didn’t fall further.”
Alan Clarke, economist at LBNP Paribas, said: “Mortgage approvals moved sideways on the month, which is essentially what has been happening all year … It suggests housing is going nowhere fast.”
Separate figures showed the BoE’s preferred money supply gauge - M4 excluding intermediate other financial corporations - was unchanged on the month, the weakest reading since January.
Ms Redwood said: “With money growth still weak, more QE might still be needed.”
Consumer credit rose by £173m on the month after a fall of £59m the month before.
Analysts had forecast that there would be no net change in consumer credit lending, while mortgage lending was forecast to rise by £700m.
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India growth rate rises to 8.8%

31 August 2010 Last updated at 05:17 ET

India’s economy grew at its fastest rate for more than two years in the last quarter, according to official data.
In the three months to June, GDP was up 8.8% compared with the same period last year.
Although only the 11th biggest economy in the world, India is the second fastest-growing, behind China.

Strong industrial and mining output helped boost the growth rate, India’s statistics agency said.
Industrial output rose more than 12%, while mining and quarrying jumped nearly 9%.
Services including hotels and banking also did well, with output up nearly 10%.
Services account for 55% of India’s economy, while industry makes up around 25% of output.
In July, the Reserve Bank of India said it expected annual growth for the current financial year to come in at about 8.5%.
But the bank has also said bringing down inflation remains a priority.
The inflation rate topped 11% last month and the strong performance in the economy is expected to encourage policymakers to continue raising interest rates.
Growth to slow
So far this year, the central bank has raised interest rates four times in a bid to curb inflation.
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The Indian economy needs to depend on domestic drivers for growth”

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Need for big deposit hits home sales hard

Just one in five prospective buyers is making a first purchase, the lowest on record and half the level needed for a stable housing market, according to property website Rightmove. Without a ready supply of new buyers underpinning transactions, property chains may collapse, pulling down prices all the way to the top.

Miles Shipside, director of Rightmove, said: “With the number of prospective buyers at the bottom of the chain being half normal levels, the question sellers further up the chain will be asking is, ‘Who will be at the bottom of my chain?’”

He added that banks are demanding larger deposits, making mortgages less accessible to first-timers.
Mr Shipside said: “Due to the new deposit rules they have to play by, it comes as no surprise that they are staying away as they are probably busy saving.”
First-time-buyers need on average a 25pc deposit now compared with 10pc before the financial crisis. Data from the Council of Mortgage Lenders shows that 80pc of first-time-buyers under 30 need assistance from parents, and that the average age of an unassisted first-time-buyer has risen from 33 to 37 in the past five years.
Most economists now forecast house prices to fall in real terms, once adjusted for inflation, for several years.
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UK economy grows at fastest pace in nine years

Construction output leaped 8.6pc in the three months to June – the strongest since the second quarter of 1963 – up from an initial estimate of 6.6pc.
On the year, the economy expanded 1.7pc.
Recovery hopes were given a further boost this week from corporate Britain, as a slew of strong results from Britain’s big companies appeared to contradict the gloomy outlook of many economists.
However, experts remained cautious on Friday, warning the second quarter would represent a peak in the rate of recovery and any further gains of this magnitude were unlikely.
“After such a large gain in Q2, and with the Government cancelling some spending on public infrastructure, it would be foolhardy to expect another large gain in the next quarter,” Malcom Barr, economist with JP Morgan, told PA.
Philip Shaw, economist at Investec, said the revision made “little difference” to the conclusion that the economy expanded “very rapidly” over the quarter.
He added: “Recent indicators suggest the third quarter got off to a good start, so although the pace of expansion in the quarter as a whole seems highly unlikely to match that in Q2, it is possible nonetheless that the UK notches up a very respectable pace of output.”
The pound fell more than 0.2pc against the dollar after the report, which showed slower services growth than previously estimated and a drop in fixed investment. The currency traded at $1.5508 as of 9:34am in London.
The yield on the benchmark two-year government bond was down 2 basis points on Friday at 0.618pc.
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