Valentina Romei of the FT says London’s fastest-growing growth shows the challenges of the government’s regional drive to “raise the bar”.
She writes:
The capital’s economy benefited from its dependence on higher-productivity service jobs that continued during the pandemic with employees working from home.
This contrasts with the West Midlands, which are more dependent on manufacturing, where first-quarter production was 10.4% below pre-pandemic levels and growth was 0.5% over the period.
Figures suggest that the pandemic and the recovery have contributed to rising UK economic inequalities.
London’s economic recovery surpasses other regions of the United Kingdom
London’s economy is outpacing the rest of the UK, according to new official data showing that the government’s leveling agenda is struggling.
The National Bureau of Statistics reports that London’s GDP rose 1.2% between January and March, much faster than the UK average of 0.8% in the first quarter of 2022.
Wales, with 1%, and East Midlands, with 0.9%, were the only other regions that grew faster than average.
Northern Ireland was the slowest with growth of 0.4%, while the North East, Yorkshire and The Humber and the South West equaled the average.
East of England, North West, Scotland and South East all were slightly slower with growth of 0.7%.
The report also shows that London and Northern Ireland are the only economies larger than their pre-pandemic levels in the fourth quarter of 2019.
West Midlands GDP is still 10% smaller than before Covid-19. This suggests that its manufacturing base has been more affected by the pandemic than the capital, where many employees went to work at home.
New regional GVA estimates based on @ONS models show that as of the first quarter of 2022, only in London and Northern Ireland was activity above the previous level at COVID-19 pic.twitter.com/ ocj2WlLFjO
– Alpesh Paleja (@AlpeshPaleja) June 7, 2022
Updated at 11.34 BST
South Africa exceeds first quarter growth forecasts
South Africa’s economy grew faster than expected in the first quarter of this year, returning to pre-pandemic levels.
Good performance in the manufacturing sector helped increase South Africa’s GDP by 1.9% between January and March, and 3% more than a year ago, as emerged from the disruption of the omicron variant.
This exceeded the quarter-on-quarter growth forecast of 1.2% and year-on-year growth of 1.7%.
Statistics South Africa said manufacturing grew by 4.9% quarter-on-quarter, while trade, catering and accommodation rose 3.1% and agriculture, forestry and fishing by 0.8. %.
Mining and quarrying contracted by 1.1%.
Updated at 10.55 BST
Investor morale in the eurozone has risen this month for the first time since Russia’s invasion of Ukraine.
Sentix’s eurozone investor confidence index has risen to -15.8 points in June from -22.6 in May, which was the weakest figure since June 2020.
While it is an improvement, it shows that the economy is still slowing down.
Sentix CEO Manfred Huebner has warned that:
“As impressive as the improvement in the situation and the values of expectations may seem at first glance, this is unlikely to take a turn.”
UK service sector slowdown: experts say
Service companies in the UK experienced a worrying combination of slower growth and higher prices in May, says Tim Moore, chief economist at S&P Global Market Intelligence (which compiled the PMI report).
“There were bright spots in the customer – oriented parts of the economy during May, driven by a rapid recovery in consumer spending on travel, leisure and entertainment.
However, hospitality companies reported extensively on the limitations for recovery due to the lack of candidates to fill vacancies and the difficulties in meeting the demand due to the continuous disruption of the global supply chain.
“Service providers are increasingly concerned about the short-term business outlook, with price resistance among consumers and rising cost of living pressures that will exhaust spending during the second half of 2022 .
Growth expectations have fallen every month since the invasion of Ukraine and are now the weakest since October 2020. ”
Duncan Brock, director of the group at the Chartered Institute of Procurement & Supply, says companies are facing rising fuel and food and wage prices.
While there was some hope for export orders that were not as flat as in previous months, Brexit customs restrictions and the war in Ukraine continued to further affect confidence abroad.
“A bright spot was the high employment levels. Job seekers still had the choice of the group in terms of the functions and salaries requested, but as capacity levels were reached. and new order gaps appear, the window of opportunity begins to close.
“The sudden drop in the global index is a cause for concern and was reflected in the optimism of the sector, which was the lowest since the peak of the pandemic in October 2020.
Fears of recession are growing and growing amid the realization that 2022, the year of stable recovery, has not yet materialized.
Sam Cooper, vice president of Market Risk Solutions at Silicon Valley Bank, says:
“Despite exceeding expectations, today’s PMI print is unlikely to move the pound sterling needle.
With a deluge of bad news in the form of political tensions, worrying BRC sales data and a chronic labor shortage combined with rampant inflation, long-term forecasts for the pound are likely to be revised downwards. as the pressure continues to rise “.
Service companies in the UK affected by rising inflation
Growth in the UK services sector slowed sharply last month as rising inflation affected customer demand.
Service companies have experienced the weakest growth since February 2021, when many companies were hit by the pandemic, according to the latest survey by the purchasing director.
It found that growth in business activity slowed considerably in May, while profit margins were compressed by rising prices.
Many companies reported that concerns about the economic outlook and rising risk aversion were affecting customer demand. However, the hospitality sector had a strong month, helped by the easing of pandemic restrictions.
Photo: S&P Global
This dragged the Services PMI to 53.4 in May, from 58.9 in April, the biggest jump since the survey began in 1996, apart from the Covid-19 blockades.
However, it is better than the “flash” reading of 51.8 taken during May.
United Kingdom S&P Global / CIPS Services PMI May F: 53.4 (exp 51.8; previous 51.8) – S&P Global / CIPS Composite PMI May F: 53.1 (exp 51.8; previous 51.8)
– LiveSquawk (@LiveSquawk) June 7, 2022
The survey shows that the cost of living pressure has not diminished: companies have been hit by a record increase in input costs and have increased their own prices at an unprecedented rate in response.
Businesses were also darker, with lower growth projections since October 2020.
The report says:
The weaker headline reading since February 2021 mainly reflected moderate business and consumer confidence, and concerns about the economic outlook also contributed to softer demand patterns in May.
Travel, leisure and entertainment were the main exceptions, with hospitality companies widely commenting on strong consumer demand due to the elimination of pandemic restrictions.
MUFG: The political instability in the UK is not good for GBP
The political instability in the UK is not good for the pound, writes Derek Halpenny of the Japanese bank Mitsubishi UFJ.
The position of the Prime Minister and his supporters is that a victory is a victory and that it is time to “draw a line” and “move forward”. This could be difficult to do. Two June 23 by-elections are likely to show large swings in favor of Labor and Liberals, while the findings of an investigation into whether Johnson lied in parliament and an investigation into the government’s handling of covid are likely to arrive after the summer holidays. .
With 41% of MPs in office now wishing him well, the outlook does not look good and a divided party is not in favor of getting policies through parliament. The difficult economic prospects ahead will be much harder to overcome with an unsupported prime minister. Difficult policies such as altering the framework of the Northern Ireland Protocol which is integral to the relationship with the EU and the Withdrawal Agreement point to further divisions along the way.
We already have GBP forecasts that indicate lower performance and weaker GBP / USD levels than the current spot level until the third quarter and the result of last night’s vote is consistent with our bearish view of GBP.
Boris Johnson was injured after his limited victory in the censorship vote, writes Modupe Adegbembo, G7 economist at AXA Investment Managers:
Adegbembo also believes Johnson could use government spending to bolster support:
We do not expect the vote to have a significant impact on the macro environment in the short term.
Fiscal policy and monetary policy outlook are likely to remain unchanged (expect the Bank of England to rise fourfold this year). However, we see the risks that a weakened prime minister seeks to strengthen support between the public and MPs through tax gifts.
It also increases the risk of more populist policies to try to regain lost support. This may include more extreme actions with regard to Northern Ireland. All this will add to an already uncertain macroeconomic background.
RBC Wealth Management’s Frédérique Carrier also predicts that the UK government could implement more stimulus measures as the Prime Minister “tries to improve his popularity”.
If so, it could encourage the Bank of England to raise interest rates even faster, says Carrier:
Chancellor Sunak’s recent £ 15bn stimulus package raised expectations for the year-end bank rate to 2.3%.
Any other such support measures could further increase the bank’s year-end expectations for the bank rate. “
Construction activity in the eurozone falls as demand weakens and costs rise
Construction activity in the eurozone has fallen for the first time in nine months, another sign that the European economy is weakening.
S&P Global Eurozone.