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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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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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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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”

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Confidence takes an austerity knock

Some 600,000 public sector workers are expected to lose their jobs in the next five years, 150,000 more than under Labour’s plans, while the higher rate of VAT will hit households in the wallet.
Some 86pc of respondents to the Markit/YouGov Household Finance Index expect the cost of living to rise in the next 12 months, a record high. At the same time, there has been the sharpest drop in confidence in job security in the private sector for 13 months, “suggesting the impact of Government spending cuts has reverberated beyond the public sector”, the report said. Respondents also estimated that the value of their properties fell in August, as the research scored its lowest reading for 13 months.
The lack of confidence came despite upbeat recent retail sales figures and forecasts that GDP growth this week will be left unrevised at a strong 1.1pc.
It also flew in the face of resilient business numbers. The ICAEW/Grant Thornton UK Business Confidence Monitor found that companies posted positive turnover and profit growth in the past three months for the first time since the start of 2009, and expect to increase staff numbers in the next year by 1.1pc. Staff numbers have been falling for 18 months.
Despite the good data, business confidence remains low. The monitor found that confidence declined from +25.5 to +21.5 in the quarter and that companies expect to increase prices by only 0.9pc in the next 12 months. Salary growth in the next year is only expected to be modest, at 1.5pc, below inflation of 2pc and 3pc – explaining workers’ fears about the rising cost of living.
Tim Moore, economist at Markit said: “Stronger growth in the UK economy has done little to put a floor under the downturn in household finances.”
Michael Izza, chief executive of ICAEW, said: “UK businesses that came through the recession are now facing the challenge of surviving the recovery.”
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Beware following in Woodford’s footsteps

Not that that will worry Woodford.
When you manage over £15bn in funds and rank as one the largest shareholders in the likes of AstraZeneca, Tesco and Vodafone, a £30m investment in an Aim company is barely a rounding error.
Cenkos’ most recent float, Masawara, an investment vehicle which plans to invest in Zimbabwe, is the latest to have caught Woodford’s eye – as its backers have been only too keen to publicise.
Woodford’s funds have taken a 29.5pc stake in the vehicle which came to the market yesterday.
But investors tempted to invest alongside the star fund manager should remember the performance of the Cenkos tiddlers he has taken stakes in bears little resemblance to the (rather more impressive) performance of his income funds.
The bigger economic picture still looks grim
There was a raft of upbeat economic news yesterday, from lower-than-expected public debt and better-than-expected retail sales to growing business confidence and higher-than-forecast mortgage lending. The data prompted at least one City economist to upgrade his growth forecasts for the UK economy this year from 1.4pc to 1.6pc.
But before we all get too carried away it’s worth noting that, while the data may not have been as bad as expected – it was still grim.
The budget deficit may well undershoot the Government’s current £149bn forecast but it is still likely to come in at record levels.
Meanwhile, on the other side of the Atlantic, an unexpected surge in jobless claims and downbeat manufacturing data provided a reminder that there is still a real prospect of the world’s largest economy dipping back into recession.
Cameron needs to go on a charm offensive to land a trade minister
When Lord Brittan resigned as Trade and Industry Secretary in 1987 in the wake of the Westland affair he was widely tipped to return to “high office” sooner rather than later.
For those who missed the implied promise in a remarkable exchange of resignation letters with Lady Thatcher, insiders at Downing Street were only too happy to make clear that this was no more “than an interruption in a brilliant career” that had included stints as Chief Secretary of the Treasury and Home Secretary.
More than two decades later and Lord Brittan is finally back operating in the upper echelons of government. Taking a sabbatical from UBS to act as trade adviser to the prime minister – albeit only temporarily.
The prime minister may now have a trade adviser but the unsuccessful hunt for a full-time permanent trade minister continues, three months after David Cameron started looking.
Cameron would, we are told, have happily stuck with the incumbent – Lord Davies – but after a long stint in government the peer grabbed the opportunity to make a timely exit.
Sir John Rose, chief executive of Rolls-Royce, was approached but, having collected a good few airmiles flying around the world for the engineering giant, it seems he had no need to pick up a few more, courtesy of the Government, before he retires.
Others who reportedly turned the prime minister down include Sir Roy Gardner, the chairman of Compass, Sir Nigel Rudd, the chairman of the airports operator BAA, and former Tesco director John Gildersleeve.
It is obviously not easy to persuade a quality candidate to give up a lucrative career in the private sector for a stint in government but, if Cameron is serious about prioritising export growth and rebalancing the economy towards manufacturing, he needs to deploy all of his obvious charm to persuade one to do so, and sooner rather than later.
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JUmp in exports sees UK trade gap narrow in June

Last updated at 1:22 PM on 10th August 2010

A rise in exports during June saw Britain’s trade deficit narrow more than expected to a four-month low.
The Office for National Statistics has revealed that the goods gap shrank to £7.401bn from £8.028bn in May, after analysts had forecast a drop to £7.8bn.
The total trade deficit, which includes services, narrowed to £3.260bn from a 22-month high of 3.818bn in May.

Export drive: Hopes rise that a re-balancing of the economy could still happen

Britain’s trade performance has been disappointing of late, with sterling’s slide since 2007 having failed to offset weaker demand from Britain’s trading partners.
Tuesday’s figures have rekindled hopes that a long-awaited re-balancing of the economy could still happen, although analysts were reluctant to read too much into one month’s release of what is often a volatile series.
Peter Dixon, an economist at Commerzbank, said: ‘It’s certainly a major improvement on what we’ve seen in recent months.
‘I guess it’s an indication that the UK economy is getting a bit of an uplift from exports, but also as the economy slows a bit, there’s a bit less imports.’
Stronger oil and chemical exports and the reduced imports of cars drove the improvement in the global goods trade deficit.
Overall, the value of UK goods exports rose 4.3 per cent on the month, while the value of goods imported into Britain rose 1.0 per cent.

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City bonuses jump 25pc to £10bn

The figures are likely to inflame the debate over banking industry pay at a time when banks are under fire for not doing enough to support the UK economy.
Lord Oakeshott, Liberal Democrat Treasury spokesman, said: “It’s bonuses for bankers and cuts and cutbacks for everyone else.
“The real tragedy is that bankers are helping themselves to bonuses at a time when many small businesses and first-time home buyers can’t get a loan.”
Last week, Britain’s five largest banks reported financial results that showed they had made combined pre-tax profits of £15bn in the first six months of the year.
The return to profitability of the banks, with Royal Bank of Scotland making its first profit since 2007, has increased the pressure on banks to increase their lending to small and medium- sized businesses, many of which complain they are having loan applications turned down.
Angela Knight, chief executive of the British Bankers’ Association (BBA), said: “Bank bonuses in the UK are subject to more stringent government control than anywhere else in the world - and are taxed accordingly.
“Banking and financial services are major employers, which is reflected in the overall pay bill. We all know that large bonuses are paid to only a small percentage of highly internationally mobile staff.”
In a Mansion House speech last month Mark Hoban, Financial Secretary to the Treasury, told an audience of BBA delegates that the industry’s remuneration system required reform.
“I don’t need to tell you that the next bonus round will be conducted against a background of continued pressure in the private sector,” he said, adding that the Financial Services Authority would be reviewing its pay code.
Financial sector bonuses in the latest period were 39pc higher than at the start of the decade, according to the ONS, with £3.9bn being paid out in February alone. The results also show that UK banks are continuing to put aside billions of pounds to pay bonuses to staff working in their investment banking arms.
Barclays said last week it had hived off £1.7bn for bonuses so far this year, the majority of which will go to staff at Barclays Capital, the bank’s investment banking division.
Despite the large bonuses paid to investment bankers, British banks complain that the new rules on employee remuneration could put them at a marked disadvantage against international competitors.
Stephen Hester, chief executive of RBS, said the bank was struggling to retain some of the best employees in its Global Banking and Market (GBM) division, which houses its investment banking operations.
Mr Hester said staff numbers in GBM were down partly as a result of the bank’s inability to be able to pay the amounts required to lure the type of people it wants to hire.
Peter Sands, chief executive of Standard Chartered, made a similar complaint, warning that the case for the bank basing itself in London had “weakened” in the last year as a result of new rules on pay.
Ms Knight said: “While the industry seeks to reward success and to discourage foolhardy risk-taking, key staff need to be rewarded or our competitors will snap them up.”
Lord Oakeshott had little time for these arguments and said he hoped the new independent commission on the banking industry would get to grips with the issue of pay.
“Competition and market discipline seem to have broken down in the banking sector,” he said.
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Austerity budget bites at recovery

Last updated at 10:36 PM on 6th August 2010

Britain’s‘ economy is slowing - even before the full impact of George Osborne’s austerity budget is felt.
Figures from the National Institute of Economic and Social research yesterday estimated that the economy grew by 0.9 per cent in the three months to July: in the previous three months to June, growth was 1.1 per cent.
‘We expect gross Domestic Product growth to soften over the coming month as the effects of fiscal consolidation take hold,’ said the national institute.

New figures: UK economy grew by 0.9 per cent in the three months to July, down compared to an 1.1 per cent increase in the three months to June

The economy has now been expanding consistently since the start of the year.
But worrying signs that the American economy is faltering emerged yesterday when it was revealed that 131,000 jobs were lost in July - virtually double what analysts had predicted. Yesterday’s UK estimate came as official statistics showed that British manufacturing contined to storm ahead in June. Manufacturing has been the main driving force behind Britain’s recovery since the economy bottomed out. 
 

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