The ONS reports that UK GDP grew by 0.2% in the three months to May, a slight improvement on the preceding rolling 3-month period in which zero growth was recorded. The modest growth was driven by the services sector but was partly offset by falling construction and industrial output. Retailing, computer programming and legal services all performed strongly while housebuilding and manufacturing both contracted.
The latest Business in Britain report from Lloyds Bank reveals that business confidence in May edged to a two-year high since the Brexit vote, with investment and hiring intentions remaining broadly steady. The outlook for exports has improved, with a net 27% of exporters anticipating stronger exports in the next six months, up from 24% in January. However, companies felt that Brexit uncertainty and weaker UK demand remained the greatest risks in the short term.
The outcome of the Brexit negotiations is no clearer than it was at the beginning of the process. The prospect of a “no deal” is still a possibility, while the Prime Minister’s latest proposals have drawn fierce criticism from both inside and outside her own party. The concept of “compromise” seems to be missing from all of the participants in the debate and time is fast running out.
The Treasury’s forecasting panel has lowered its 2018 GDP growth projection to 1.3%, down from 1.4% in June. A similar reduction – from 1.5% to 1.4% - was also made for 2019.
Annual consumer price inflation was unchanged for the second month in a row at 2.4% in May, although RPI inflation rose to 3.4% from 3.3%. The Treasury forecasting panel’s 2018 inflation (CPI) forecast was held at 2.3% for the third month in succession, although the RPI forecast was lowered to 3.1%. Reductions in both inflation measures are forecast for 2019.
The Bank of England’s Monetary Policy Committee did not meet in June and Bank Rate remains at 0.5%. Earlier in the year it was widely expected that there would be several increases this year, however, this looks less likely now. Nonetheless, some commentators anticipate that the August meeting will result in a 25 basis point increase. UK 3 month Libor rates have risen this month and as at 17 th July stood at 0.76%, while 5 year swap rates dropped again to 1.306%.
The labour market continues to expand despite the sluggish performance of the economy. The latest employment rate has risen to 75.6%, the highest since comparable records began in 1971. The latest unemployment rate remains at 4.2%, the joint lowest since 1975.
Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms have increased by 2.7% excluding bonuses, and by 2.5% including bonuses, compared with a year earlier. Inflation continues to take its toll, however, and average weekly earnings for employees in Great Britain in real terms have risen by just 0.4% excluding bonuses, and by 0.2% including bonuses, compared with a year earlier.