07/05/2015 BCC Economic Review PAGE 1 OF 4 BCC Monthly Economic Review May 2015 (Based on April 2015 data releases) Monthly headlines: Outlook for the UK economy remains strong, despite GDP growth slowing to three-year low The UK’s trade deficit widens, but public finances continue to improve Global outlook remains uncertain as China and US growth slows in Q1 UK economic growth slowed sharply in Q1... The UK economy grew by 0.3% in Q1 2015, the slowest rate since Q4 2012 and half the growth rate of 0.6% recorded in the previous quarter. In annual terms, UK GDP growth slowed to 2.4% in Q1, from 3.0% in Q4. Although the BCC’s Quarterly Economic Survey (QES) revealed that most of the key balances weakened in Q1 2015 when compared with Q4 2014 (see Chart 1), the scale of the slowdown recorded in the official data is at odds with the latest QES data, which indicates that the UK economy is doing better than the preliminary GDP estimate suggests. -60 -40 -20 0 20 40 60 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 % Balance Quarterly GDP Growth % Chart: 1 Real GDP and Domestic Sales Quarterly GDP growth Domestic sales (Manufacturing) Domestic sales (Services) ...as output weakens across the economy… Output fell in three of the four main industrial groupings (see Chart 2). In Q1, industrial production fell by 0.1%, construction output declined by 1.6%, and agricultural production dropped by 0.2%. In contrast, the service sector - which accounts for over three quarters of UK economic output - was the sole driver of GDP growth in the first three months of 2015, growing by 0.5% in the quarter. Although this was weaker than the 0.9% growth recorded in the previous quarter, it would not be surprising if this estimate was upgraded in due course. -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 Services Agriculture Production Construction Quarterly Change % Chart 2: UK GDP by Sector, Q1 2015 -50 -40 -30 -20 -10 0 10 20 30 40 28.0 28.5 29.0 29.5 30.0 30.5 31.0 31.5 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 Balance % Millions Chart 3: UK Employment Employment (millions) Employment - last 3 months (Manufacturing) Employment - last 3 months (Services) ...however a strong jobs market... In the three months to February 2015, UK employment rose by 248,000 compared with the previous three months. The number of people who are unemployed fell by 76,000 over the same period. Although the latest BCC Quarterly Economic Survey (QES) revealed that the backward looking employment balances weakened in Q1 (see Chart 3), the declines were from the record highs recorded in the previous quarter. Overall, both the latest Official for National Statistics (ONS) and QES data highlight the continued strength of the UK labour market. Source: ONS GDP first estimate, Q1 2015 Source: ONS GDP first estimate, Q1 2015 Sources: BCC and ONS
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07/05/2015 BCC Economic Review PAGE 1 OF 4
BCC Monthly Economic Review May 2015 (Based on April 2015 data releases)
Monthly headlines:
Outlook for the UK economy remains strong, despite GDP growth slowing to three-year low
The UK’s trade deficit widens, but public finances continue to improve
Global outlook remains uncertain as China and US growth slows in Q1
UK economic growth slowed sharply in Q1...
The UK economy grew by 0.3% in Q1 2015, the
slowest rate since Q4 2012 and half the growth rate
of 0.6% recorded in the previous quarter. In annual
terms, UK GDP growth slowed to 2.4% in Q1, from
3.0% in Q4. Although the BCC’s Quarterly Economic
Survey (QES) revealed that most of the key balances
weakened in Q1 2015 when compared with Q4 2014
(see Chart 1), the scale of the slowdown recorded in
the official data is at odds with the latest QES data,
which indicates that the UK economy is doing
better than the preliminary GDP estimate suggests.
-60
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% B
alan
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rly
GD
P G
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th %
Chart: 1 Real GDP and Domestic Sales
Quarterly GDP growth
Domestic sales (Manufacturing)
Domestic sales (Services)
...as output weakens across the economy…
Output fell in three of the four main industrial
groupings (see Chart 2). In Q1, industrial production
fell by 0.1%, construction output declined by 1.6%,
and agricultural production dropped by 0.2%. In
contrast, the service sector - which accounts for over
three quarters of UK economic output - was the sole
driver of GDP growth in the first three months of
2015, growing by 0.5% in the quarter. Although this
was weaker than the 0.9% growth recorded in the
previous quarter, it would not be surprising if this
estimate was upgraded in due course.
-2.0
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-1.0
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Services Agriculture Production Construction
Qu
arte
rly
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ange
%
Chart 2: UK GDP by Sector, Q1 2015
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Bal
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%
Mill
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Chart 3: UK Employment
Employment (millions)
Employment - last 3 months (Manufacturing)
Employment - last 3 months (Services)
...however a strong jobs market...
In the three months to February 2015, UK
employment rose by 248,000 compared with the
previous three months. The number of people who
are unemployed fell by 76,000 over the same period.
Although the latest BCC Quarterly Economic Survey
(QES) revealed that the backward looking
employment balances weakened in Q1 (see Chart 3),
the declines were from the record highs recorded in
the previous quarter. Overall, both the latest Official
for National Statistics (ONS) and QES data highlight
the continued strength of the UK labour market.
Source: ONS GDP first estimate, Q1 2015
Source: ONS GDP first estimate, Q1 2015
Sources: BCC and ONS
07/05/2015 BCC Economic Review PAGE 2 OF 4
+
some
...and low inflation to support UK growth...
CPI inflation stood at 0% in March, unchanged from
February. Falling clothing and gas prices put the
largest downward pressure on prices overall, but
these were offset by a rise in the price of motor fuels
and smaller upward contributions from a variety of
other products, such as food. Although any period of
deflation in the coming months is likely to be
temporary, the latest QES revealed that intentions to
raise prices in the coming months fell in Q1. (see
Chart 4). This means that inflation is set to remain
low in the near term which alongside growing
employment will help to support UK GDP growth.
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Chart 4: Intention to Raise Prices
Prices (services) Prices (manufacturing)
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Bill
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Chart 5: NICs and Income Tax Receipts
NICS Income Tax
...but the UK’s trade position remains weak... The UK's trade deficit nearly doubled in February
rising to £2.9 billion, from £1.5 billion in January (see
Chart 6). There was a deficit of £10.3 billion on
goods, which was partly offset by a surplus of £7.5
billion on services. This mirrors the findings from the
latest QES, with the export balances for both
manufacturing and services firms weakening in Q1.
The widening of the trade deficit mainly reflects a
fall in exports of goods to non-EU countries,
particularly to the US, where exports decreased by
£0.7 billion. Overall the latest trade figures confirm
that rebalancing the UK economy remains too slow.
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Chart 6: UK's Net Trade Position
Source: ONS UK Trade, February 2015
...and the public finances are improving…
UK public-sector borrowing, excluding public sector
banks, stood at £7.4 billion in March 2015, a decrease
of £0.4 billion, compared with March 2014. This
improvement was driven by increased revenues from
income tax and national insurance, which both
reached their highest levels since records began in
1993 (see Chart 5). This meant that despite a slow
start to the financial year, public-sector borrowing
totalled £87.3 billion in 2014/15, £11 billion lower
than the amount borrowed in 2013/14. Despite the
recent improvement, the task of balancing the UK's
public finances remains an uphill challenge.
Source: BCC QES Q1 2015
Source: ONS Public Finances, March 2015
07/05/2015 BCC Economic Review PAGE 3 OF 4
Bottom line: Overall, April’s economic data releases provide further evidence that the UK economy will continue to grow at a good pace. In contrast, the outlook for the global economy remains rather more uncertain with the growth prospects of individual countries likely to remain mixed. Although US growth is likely to pick up in the coming months, China’s economy is expected to continue to slow and the eurozone remains weak.
For more information please contact: Suren Thiru, UK Economic Advisor. Email: [email protected]. Tel: 020 7654 5801
...as the US economy weakens in early 2015...
The US economy grew by 0.2% on an annualised basis
in Q1 2015, weaker than the growth of 2.2% recorded
in Q4 2014 (see Chart 7). This slowdown was driven by
a 7.2% fall in exports and weaker consumer spending
and investment. However, with the slowdown largely
due to a number of short-term factors, including the
harsh winter weather which hit consumer spending,
the US economy may well bounce back in the rest of
2015, mirroring a similar trend seen in 2014 when US
GDP contracted by 2.1% in Q1 before bouncing back in
subsequent quarters.
…and China's economy continues to slow...
China - the world’s second largest economy - grew at
an annual rate of 7.0% in Q1 2015. This is the slowest
rate since Q1 2009 and lower that the growth of 7.3%
recorded in the last quarter of 2014 (see Chart 8). This
mirrors last year’s slowdown with the Chinese
economy growing by 7.4% for 2014 as a whole, the
weakest rate since 1990. The continued slowdown in
Chinese growth reflects the weakness in the property
market, high debt levels following the credit-fuelled,
investment-led recovery from the recession of 2008-09
and China's drive to rebalance its economy towards
consumer-driven growth.
...but the eurozone is showing signs of life.
The number of people who were unemployed in the
eurozone stood at 18.1 million in March, 679,000
lower compared with March 2014. This meant that the
eurozone unemployment rate stood at 11.3% in
March 2015, the joint lowest rate since May 2012 and
lower than March 2014’s unemployment rate of 11.7%
(see Chart 9). Encouragingly, the eurozone also edged
out of deflation in April after four months of falling
prices. Despite the gradual improvement in inflation
and unemployment data, the recovery in the eurozone
Economic Summary Chart Deteriorating No change Improving
*Colours indicate an improvement or deterioration of each indicator and refer to monthly changes unless stated. For example, an improvement in employment refers to an increase, while an improvement in unemployment refers to a fall. Dates refer to the release dates for each indicator. **Annual changes. ***Quarterly changes. ****Latest figures are estimates.
Global US GDP (BEA)****US unemployment (BLS)Eurozone GDP (Eurostat)****Eurozone Unemployment (Eurostat)China GDP (Oxford Economics)China unemployment (National Bureau of Statistics)