Economy grew ‘more than thought’

27 August 2010 Last updated at 13:24 ET

The UK economy grew by more than initially thought in the second quarter of 2010, boosted by a strong performance by the construction sector.
The economy grew by 1.2% in the quarter, the Office for National Statistics (ONS) said, revising up its initial estimate of 1.1% growth.
That was the fastest rate of quarterly expansion recorded since the first three months of 2001.
But most economists do not expect this level of growth to continue.

The first estimate of gross domestic product (GDP) is usually revised twice at monthly intervals.
Meanwhile, the US Commerce Department revised down its growth estimate for the second quarter.
It now says the US economy grew at an annual rate of 1.6%, down from its first estimate of 2.4%.
Federal Reserve chairman Ben Bernanke has responded, laying out four “unconventional” policy options to boost the US economy.
Top of the list is more “quantitative easing” - mass purchases of debt.
‘Positive’ effect
The ONS said construction output grew by 8.5% in the second quarter, up from a previous estimate of 6.6%.
Aileen Simkins from the ONS said the overall effect in the quarter had been “very positive”.
But one area that suffered a big fall was air transport, which fell 11%.
Ms Simkins said the fall in air transport reflected the effect in April of the ash cloud as well as the British Airways strike.
A spokesman for the Treasury said: “While the government is cautiously optimistic about the path for the economy, the job is not yet done.
“The priority remains to implement the Budget policies which support economic rebalancing and help ensure the sustained growth that the Office for Budget Responsibility forecast this year and next.”

‘Eyes on the road’
Growth in the key services sector, which accounts for about three-quarters of the UK economy, was revised down to 0.7%.
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British economy grows at fastest pace for nine years as GDP revised up to 1.2%

Last updated at 12:00 PM on 27th August 2010

The UK economy grew at its fastest pace for almost a decade in the second quarter of 2010 the Office for National Statistics has revealed.
The GDP figures, which were revised upwards from 1.1 per cent to 1.2 per cent, show that Britain’s economy grew a faster pace than first thought and at a rate not seen for nine years.
The advance, the strongest since the same figure was achieved in the first quarter of 2001, was attributed to record-breaking gains in the construction sector, which helped lift the country’s industrial production.

On the up: Construction of buildings such as London’s Shard of Glass have helped boost construction

The latest figures showed a slight downward revision to growth from the key services sector, which accounts for more than 70 per cent of GDP, from 0.9 per cent to 0.7 per cent, compared with a 0.3 per cent rise in the first quarter.
But a record-breaking performance in construction sector output, revised upwards from 6.6 per cent to 8.5 per cent - its strongest rate since the first quarter of 1982 - led to the upward revision of the GDP growth rate.
The estimated growth rate for the quarter at 1.1 per cent was already the strongest in four years when it was released last month, so a further increase will add to hopes for a solid economic recovery.
However, economists have warned growth in the second quarter represents a peak in the rate of recovery and any further gains of such magnitude are unlikely.
 

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Household finances ‘under strain’

23 August 2010 Last updated at 07:08 ET

Household finances came under pressure on all fronts in August, according to market researchers Markit and YouGov.
Their Household Finance Index showed people were increasingly worried about losing their jobs and higher costs of living, despite the growing economy.
Some 30% of the 2,000 households polled said their finances had worsened from last month; 6% said they had improved.
And a Centre for Economics and Business Research (CEBR) study showed family spending power falling 2.5% in a year.
The CEBR survey, carried out on behalf of supermarket chain Asda and based on Office for National Statistics data, measured the amount of money that households had left to spend after paying taxes and buying basic items.
It indicated that the average UK household had discretionary income of £175 a week in July 2010, down from £180 a year earlier.
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Stronger growth in the UK economy has done little to put a floor under the downturn in household finances”

End Quote Tim Moore Markit

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Interest rates ‘may hit 8pc’ in two years

“Given the constraints of late 2008 and the absurdities of subsequent fiscal, finance and regulatory policy, if we can get away with a recession of only 6.6pc, deflation of only 2pc and inflation of only 10pc for one year, [Bank of England Governor] Mervyn King will deserve a medal,” Mr Lilico said.
A brief double dip recession early next year is likely, he said, but it “would be quite compatible with a boom thereafter”. That boom would quickly run out of control, as the £200bn of “money printing” by the Bank during the crisis would lead to “a huge expansion in the money supply, which will lead to inflation”. He estimates that the Retail Prices Index (RPI), the inflation measure favoured in wage settlements and against which annual rises in train fares are priced, would rise “above 10pc”. The Consumer Prices Index (CPI), the inflation measure that the Bank is responsible for keeping at around 2pc, will top 6pc, Mr Lilico reckons.
“I believe that this will be the combined result of natural recovery-driven growth and massive and unsustainable investment driven by huge monetary growth,” he said.
This week, official data from the Office for National Statistics is expected to confirm that the economy grew 1.1pc in the second quarter of the year – reinforcing hopes that the recovery is strong enough to withstand the Coalition’s planned spending cuts.
To control inflation, “interest rates will rise rapidly as well”, Mr Lilico says. “To keep [RPI] inflation down to only 10pc for one year, the economy will have to be able to tolerate interest rates of perhaps 8pc.”
Mr Lilico’s alarmist comments echo those of Sir John Gieve, the former Bank of England deputy Governor, who said last month that he expects “rates to start rising faster than the market currently expects … I wouldn’t be at all surprised to see interest rates at 2.5pc a year from now”.
High interest rates, however, could prove too much for households, which are currently benefiting from historically low average mortgage rates of 4pc.
Mr Lilico added: “There is a risk that… the economy will not be able to tolerate 8pc interest rates without the mass defaulting on mortgages that we are trying to avoid. If that is the case, then interest rates may have to be kept lower for an additional nine months and the consequence will be inflation peaking at 20pc rather than 10pc, as in the 1970s. The consequence of interest rate rises will be another recession in 2013 or 2014,” he said.
Mr Lilico, a monetarist at the right-of-centre think tank, is close to the Coalition but his ideas are considered extreme. He said: “The fact that scenarios such as mine are regarded as bizarrely unlikely is, to my mind, an indication that certain quarters have lost their sense of historical perspective… Policymakers in the early 1990s did not want inflation to exceed 10pc – they simply lost control of the situation and were unable to prevent it. Are we really so confident that there is no chance of policymakers today losing control of events?”
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Wannabe buyers seeing rents rise

20 August 2010 Last updated at 09:47 ET

Potential first-time buyers are facing rising rents as they wait to raise a deposit for a home, a survey has said.
Landlords raised their rents for the sixth consecutive month as demand increased and supply was squeezed, the poll by LSL Property Services found.
Average monthly rent amounted to £676, although this would pay for renting different-sized properties in different parts of the UK.

A home remains most people’s biggest asset in the UK.
The value of properties judged by house price surveys is under the microscope in a new study.
The Office for National Statistics is monitoring the different, officially-sanctioned house price surveys to ensure they do not give conflicting messages.
‘Accurate’
The review was welcomed by one member of the industry.
Robert Bartlett, chief executive of estate agent Chesterton Humberts, said that it would be good to come up with a system that gave a “timely and accurate” indication of house prices in a local area.
“Prices vary enormously from property type and location,” he said.
Analysis of the housing market by accountants PricewaterhouseCoopers suggested that there would be a 2% average real rise in house prices between 2010 and 2020.
However, this would represent a lower rate of increase relative to the average real UK house price growth of about 4% per year between 1984 and 2007 and about 3% per year between 1984 and 2010, it said.
Meanwhile, first-time buyers are still having to find a large deposit to get on the property ladder.
“The biggest issue is the lack of funding,” said LSL’s managing director David Newnes.
“Is is constraining first-time buyers and investor landlords from coming into the market because of the need for such an enormous deposit.”
A number of “accidental landlords” - homeowners who tried to sell but were forced to let instead - were now selling up, reducing the amount of rental property available, he said.
Geography was also a factor in the rental market, with the average rent unlikely to be enough for a property in central London, but possibly enough for a semi-detached home in the Midlands.
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Equal pay still 57 years away

This is despite a 2.8pc growth in pay packets for women over the last year, compared to 2.3pc on average for men.
Petra Wilton, head of policy at the CMI, said: “Girls born this year will face the probability of working for around 40 years in the shadow of unequal pay. The prospect of continued decades of pay inequality cannot be allowed to become reality.”
Ms Wilton called on the Government to “take greater steps” to enforce pay equality by naming and shaming organisations who fail to pay male and female staff fairly.
She added: “It’s not just Government that needs to act. Competitive businesses need to attract diverse workforces and appeal to the most talented employees. To do this managers and employers need to recruit from a wide talent pool but they cannot expect to attract the UK’s best female talent if they continue to undervalue it.”
The IT industry was the worst offender, the survey showed, with women on average getting paid £17,736 per year less than men. The pharmaceutical industry generally paid its female workers £14,018 less than males.
Across the regions, women in the Midlands fared the worst, taking home £10,434 less than men doing the same jobs, the survey, carried out in conjunction with XpertHR, showed. Even the smallest pay gap, in the North East, stood at £8,955.
The Equal Pay Act, designed to eradicate gender inequality, was introduced in 1970. Four decades after the legislation, the national gender pay gap stands at 16.4pc, according to the Office for National Statistics.
In certain sectors, such as finance and law, women working full time can earn just over half the amount men get.
The Government’s new Equality Act, due to come into force this October, is expected to outlaw gagging clauses written into workers’ contracts that prevent colleagues from discussing pay and bonuses.
Theresa May, the Home Secretary, said the move will bring an end to the “culture of pay secrecy” that has dominated the workplace for decades.
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UK inflation slows again in July

17 August 2010 Last updated at 07:33 ET

UK inflation eased to 3.1% in July from 3.2% in June, the third month in a row that prices have risen more slowly.
However, the Consumer Prices Index (CPI) is still well above the Bank of England’s 2% target rate.
The Retail Prices Index (RPI) slowed to 4.8% from 5% in June, the Office for National Statistics (ONS) said.

The governor of the Bank of England has written to the chancellor of the exchequer explaining why inflation is still above target.
In his letter, Mervyn King said that although the Bank’s Monetary Policy Committee (MPC) had been “surprised” by the recent strength of inflation, this was largely due to “temporary” factors.
These included the return of VAT in January to 17.5% following the reduction to 15% during the recession, past rises in oil prices and higher import prices as a result of the depreciation in the pound since the middle of 2007.
However, he said “there remains a significant probability that I will need to write further open letters to you in the coming months”.
Last week, the Bank said it expected inflation to remain higher than forecast in the coming months, largely because of the rise in VAT to 20% in January next year.
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Surge in food prices keeps inflation above target at 3.1%

By Mail Online ReporterLast updated at 11:16 AM on 17th August 2010

A squeeze on food bills keep the cost of living well above the Bank of England’s target in July, official figures showed today.
The Consumer Prices Index edged down from 3.2 per cent to 3.1 per cent over the month, in line with City hopes.
However, Governor Mervyn King had to write another open letter to the Chancellor to explain the stubbornly high inflation.
The Office for National Statistics said food prices jumped 0.7 per cent between June and July, the biggest monthly rise for two years.
But falling petrol costs and second-hand car prices over the month - in contrast with steep rises a year earlier - helped ease CPI overall.

Squeeze: Food prices jumped 0.7 per cent in July, pushing up inflation

The ONS said higher costs for meat, fruit and vegetables during July also contrasted with price falls a year earlier.

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Number of long term unemployed young people soars by 42%

By Daily Mail ReporterLast updated at 12:02 PM on 11th August 2010

Unemployment falls to 2.45m - biggest drop in three years
Part-time workers soar due to shortage of full-time positions
Overall unemployment rate at 7.8% in April to June quater
The number of young people trapped in long-term unemployment has soared by 41.9 per cent in the last year, it emerged today.
Latest figures from the Office for National Statistics (ONS) reveal that  72,000 people aged 18 to 24 had been out of work for two years or more in the three months up to June.
This was an  11 per cent increase on the previous quarter - and a 41.9 per cent increase in the last 12 months.

A Jobcentre in Westminster, London: The number of people without a job has fallen in the last quarter

The figures fuel fears that tens of thousands of young people have never had a job and risk being caught in an inescapable unemployment trap.
Despite the bleak forecast for younger workers, the ONS recorded the largest rise in jobs for more than 21 years in the last quarter, driving the unemployment figure down by 49,000.
UK unemployment fell to 2.45million after the biggest quarterly decrease for three years.
The drop came after a 184,000 increase in the number of employed to 29 million, marking the largest quarterly hike since the three months to May 1989.
 

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Bank ‘to revise’ growth forecast

11 August 2010 Last updated at 04:58 ET

The Bank of England is expected to lower its economic growth forecast for the UK and raise its expectations for inflation next year, when it publishes its quarterly inflation report later.
The revisions will reflect the decision to increase VAT to 20% next year.
Downward revisions to growth forecasts may fuel fears of a double dip recession in the UK.
In May, the Bank predicted growth of 3.4% in 2011 and forecast inflation to fall below its 2% target next year.

The Office for Budget Responsibility (OBR) expects growth of 2.3% next year.
Brian Hilliard, chief UK economist at Societe General, told BBC Radio 5 live that Bank of England governor Mervyn King faced a challenge in having to deal with the combination of lower economic growth and higher inflation.
“The message that King will want to leave the markets with is that despite this odd mix they are still concerned about growth and they don’t plan to raise interest rates any time soon,” he said.
On Tuesday, America’s central bank, the Federal Reserve, admitted that the pace of recovery there had slowed in recent months and was likely to be more modest than anticipated in the short term.
Inflation in the UK in June stood at 3.2% on the Consumer Prices Index (CPI) measure, above the Bank’s target rate.
The Retail Prices Index (RPI) inflation measure stood at 5%.
Slowdown
The latest official unemployment data released on Wednesday indicated that the jobs market has yet to weaken.
The number of people unemployed in the UK fell by 49,000 to 2.46 million in the three months to June, according to the Office for National Statistics.
This is the second consecutive month that the jobless number has fallen.
Figures released earlier this week suggested that house prices are starting to fall and that High Street spending is slowing.
The British Retail Consortium reported a 0.5% rise in retail sales in July compared with a year earlier, down from the 1.2% increase seen in June.
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