UK’s economy grew at its weakest annual pace in more than 7 years - GulfToday

UK’s economy grew at its weakest annual pace in more than 7 years


Passengers at the Waterloo station in central London, Britain. Reuters

Britain’s economy grew at its weakest annual pace in more than seven years in November. This raises the expectations that the Bank of England (BOE) will cut interest rates later this month.

Monday’s official figures showed the economy in November - before last month’s decisive election win for Prime Minister Boris Johnson - was just 0.6 per cent larger than a year before, the weakest expansion since June 2012.

The November figure represented a slowdown from annual growth of 1.0 per cent in October, after that month’s growth pace was revised up from previously reported data.

Output in November alone shrank by 0.3 per cent, the biggest drop since April. Economists polled by Reuters had expected unchanged output for the month. The weak data, reflected the uncertainty of last autumn about Brexit and the election, said John Hawksworth, chief economist for accountants PwC.

“It is too early to say for sure if economic momentum will pick up in the new year now the political situation is clearer, but our latest survey of the financial services sector with the CBI does suggest some boost to optimism since the election,” he said.

Sterling fell and government bond yields headed lower as financial markets priced in a 50 per cent chance the Bank of England will cut interest rates on Jan. 30, after its next meeting.

The BoE predicted in November that the economy would eke out limited growth in the fourth quarter, before recovering in 2020. That forecast assumes progress towards a post-Brexit trade deal and a reduction in US-China trade tensions. In the past week, BoE Governor Mark Carney - who steps down in March - and two other rate-setters, Silvana Tenreyro and Gertjan Vlieghe, said a rate cut could be needed if those assumptions prove over-optimistic.

Two more policymakers, Michael Saunders and Jonathan Haskel, already support a rate cut. However, there have been some signs that business confidence has revived since Johnson’s Conservatives won an unexpectedly large majority in the Dec.12 election.

That victory put Britain on course to leave the European Union on Jan. 31 with a transition deal.

However, Johnson has only given himself 11 months to reach a long-term trade deal with the EU, and some businesses fear they could face tariffs and other obstacles to trade with the EU from 2021.

Looking at the three months to November, which smoothes out some volatility, the economy grew by 0.1 per cent versus poll forecasts for a 0.1 per cent fall, due to unexpected upward revisions to September and October output, which the ONS said reflected late survey returns.

“Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing,” ONS statistician Rob Kent-Smith said.

Meanwhile the Britain’s financial regulator proposed an overhaul of cash saving products designed to improve interest rates offered to long-standing customers. The Financial Conduct Authority (FCA) said last year that first-time customers for cash savings products were getting higher interest rates than existing customers when they came off introductory offers, dubbed a loyalty penalty in the industry.

Under the FCA proposals, firms will have to set a single easy access rate (SEAR) across all accounts that let savers withdraw their money when they want in a move that would boost interest payments by 260 million pounds ($341 million) a year. Banks will still be able to compete by offering an introductory rate that is usually cut after a set period.

“Firms will have flexibility to offer multiple introductory rates for up to 12 months, then they will need to choose one SEAR for their easy access cash savings accounts, and one for their easy access cash savings ISAs,” the FCA said.

The FCA said competition in cash savings products was not working well for many of the 40 million consumers who hold either an easy access savings account or easy access cash Individual Savings Account (ISA). Christopher Woolard, the FCA’s head of competition, said the proposed new rule should be in place before the start of the 2021-2022 tax year and will help the 90% of cash investors that switch products infrequently or not at all.

UK Finance, which represents banks, said that regulatory intervention that increases the overall cost of deposit funding for providers will, in general, result in providers having to raise the cost of loans to maintain adequate margins.

Companies will also have to publish data every six months on the SEARs they offer so investors can compare different institutions when they first open a savings account.


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