Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

 

From the desk of Ruth Lea

Economic insight and financial comment related to the ever-changing financial landscape and the economic world at large.

Economic Perspectives

20th September 2021

Economic Insight - 20 September 2021

The CPI inflation rate jumps in August, but MPC still expected to see higher inflation as temporary
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK data:
Press Release

The CPI inflation rate jumps in August, but MPC still expected to see higher inflation as temporary

Date: 20th September 2021

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK data:br />
  • CPI rate increased to 3.2% (YOY) in August, compared with July’s 2.0%, partly reflecting higher transport costs (including fuel and second-hand cars).
  • The ONS said the change in the CPI inflation rate between July and August partly reflected base effects. In August 2020 the Eat Out to Help Out scheme and a cut in the VAT rate for the hospitality sector pushed prices down. Prices in catering services fell 5.8% (MOM) in August 2020, compared with a 0.2% (MOM) rise in August 2021.
  • Increases in producer prices inflation suggest further inflationary pressures in the pipeline. Output prices annual inflation rose to 5.9% in August (5.1% in July), whilst input prices annual inflation rose to 11.0% in August (10.4% in July).
  • The labour market continues to recover. Payroll employees increased by 241,000 in August to 29.1mn, returning to pre-coronavirus pandemic (February 2020) levels.
  • Employment (LFS data) increased in the three months to July, whilst unemployment fell; the unemployment rate fell to 4.6%.
  • There were 8.370mn inactive people (16-64 years) in the three months to February 2020 (pre-pandemic), compared with 8.711mn in the three months to July, indicating there are still around 350,000 more inactive people (16-64 years) than pre-pandemic. If people aged 65+ are included, there are currently over 600,000 more inactive people than pre-pandemic.
  • Vacancies rose to over 1 million in the three months to August, a record.
  • Annual average earnings inflation remains elevated. It was 8.3% for total pay (including bonuses) and 6.8% for regular pay (excluding bonuses) in the three months to July 2021. The ONS estimated that the “underlying” regular earnings growth rate, allowing for base effects, was 3.6%-5.1%, compare with the 6.8% unadjusted figure.
  • The ONS reported that house prices fell by 3.7% (MOM) on a non-seasonally adjusted basis in July and by 4.4% (MOM) on a seasonally adjusted basis, after the tapering of the stamp duty holiday. In annual terms they rose by 8.0% in July 2021, down from 13.1% in June.
  • Retail sales volumes fell by 0.9% (MOM) in August, the fourth consecutive month, but they were still 4.6% higher than in pre-pandemic February 2020.
Central Bank news:
  • The MPC meets this week and interest will focus on two issues. The first is whether the MPC will modify its assessment that higher inflation is “transitory”, in the light of the latest inflationary pressures. The second is whether the new Chief Economist Huw Pill (and possibly others) will vote to rein in QE. Michael Saunders was the only MPC member to support reining in QE in August.
  • The Fed also meets this week. Interest will focus on the tapering update, with some expectations that the Fed may announce a date when tapering could begin.
UK political news:
  • The Prime Minister reshuffled his Cabinet last week. Rishi Sunak remained the Chancellor of the Exchequer.
  • It has been announced that there will be further delays in imposing checks on, firstly, specified goods imports from the EU and, secondly, specified goods sent from GB to NI.
  • The Government announced its “new plans to capitalise on the freedoms from Brexit”.
Ruth Lea said “It is widely expected that CPI inflation will pick up further in forthcoming months, not least because of higher household energy bills and the increase in the VAT rate for the hospitality sector. And a recent pick-up in producer prices inflation suggests other inflationary pressures in the pipeline. The Bank has, of course, forecast that inflation will increase to 4% in 2021Q4 before falling back and returning to close to the 2% target in the medium term. At this week’s MPC meeting interest will focus this week on whether the MPC maintains its stance that the uplift in inflation is “transitory”, given the latest developments. On balance, we expect that it will, but clearly there are dangers that higher inflation will become imbedded.”

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html 

Press enquiries:

Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk 
Follow Ruth on Twitter @RuthLeaEcon

Maitland: 
Sam Cartwright 
020 7379 4415
arbuthnot@maitland.co.uk

Download full article

13th September 2021

Economic Insight - 13 September 2021

Disappointing GDP data in July, as the recovery slows
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK data:
Press Release

Disappointing GDP data in July, as the recovery slows

Date: 13th September 2021

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK data:
  • GDP rose a disappointing 0.1% (MOM) in July and was still 2.1% lower than in pre-pandemic February 2020.
  • Services were flat in July, whilst production rose, bolstered by a recovery in oil field production. Construction output fell for the fourth consecutive month.
  • There was a modest deterioration in the trade balance in July. Exports to the EU fell by 6.5% (MOM), whilst exports to the non-EU rose by 5.0%.
  • Markit indicators suggested continuing growth in August, though growth slowed for services and construction compared with July. Manufacturing was little changed. The surveys noted continued business concerns about staff and supply shortages and inflationary pressures. However, all three sectors remained optimistic about prospects.
  • The SMMT reported weak new car registrations in August.
  • The Halifax reported house prices rose by 0.7% (MOM) in August, to be 7.1% higher YOY.
  • The HMRC reported that the number of employments (sic) on furlough was 1.56mn on 31 July 2021, some 340,000 lower (MOM) than on 30 June. The number had peaked at 8.9mn on 8 May 2020. The furlough scheme is due to end on 30 September 2021.
  • In giving evidence to the Treasury Select Committee, the Bank Governor said the end of the furlough scheme should help with current worries about “getting jobs filled” but added that, while other pressures on the economy caused by supply chain bottlenecks and higher commodity prices looked likely to fade, he had a “bit more concern about persistence in the labour market story”. On the economy generally he noted that “…at the moment we are seeing some levelling off in the recovery.”
Other UK news:
  • The Chancellor launched the Spending Review 2021 on 7 September, which will set budgets for FY2022-FY2024. The Review will be released on 27 October, the same day as the Budget.
  • The PM announced the Plan for Health and Social Care on 7 September, in which around £12bn a year of additional taxation will be raised to provide extra resources for health and social care. Around £1.8bn a year will be allocated to social care.
  • A UK-wide 1.25% Health and Social Care Levy based on National Insurance contributions (NICs) will be introduced. The Levy will be effectively introduced from April 2022 (FY2022), when NICs for working age employees, self-employed and employers will increase by 1.25%. From April 2023 (FY2023), the 1.25% Levy will be formally separated out and will also apply to individuals working above State Pension age, and NICs rates will return to their FY2021 levels. The rates of dividend tax will also be increased by 1.25% from April 2022.
International update:
  • The ECB moderately slowed the pace of net asset purchases under the pandemic emergency purchase programme (PEPP) at its September meeting. Policy was otherwise left unchanged.
  • The ECB upgraded its GDP forecasts in September compared with June and raised its inflation forecasts. Higher inflation was assessed to be driven by “temporary upward factors”.
Ruth Lea said “The increase in July’s GDP was disappointing. However, the “pingdemic”, with associated staff absences, operated throughout the month, with the relaxation of the self-isolation requirements of those contacted by Test and Trace only lifted on 16 August. Growth should, therefore, improve in August and recovery should be sustained. But it is clear that growth has slowed significantly since earlier in the year. Granted the Markit surveys suggested some overall slowing in August compared with July, but this does not invalidate Markit’s findings, or indeed the ONS’s data, as there are timing and coverage differences”.

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html 

Press enquiries:

Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk 
Follow Ruth on Twitter @RuthLeaEcon

Maitland: 
Sam Cartwright 
020 7379 4415
arbuthnot@maitland.co.uk

Download full article

12345678910111213141516171819 (2020)(2019)

Comment, at a glance

Public sector net borrowing £20.5bn in August
21 September 2021

The ONS estimated that public sector net borrowing (PSNB-ex, excluding public sector banks) in August 2021 was £20.5bn, greater than expected, compared with £26.1bn in August 2020. It was the second highest August borrowing since monthly records began in 1993.

The CGNB was £18.4bn in August 2021, compared with £24.7bn in August 2020 (table 4):
·       CG receipts were estimated to have been £61.2bn, a £5.3bn increase compared with August 2020. Of these receipts, tax revenue increased by £4.1bn to £45.0bn.
·       CG bodies spent £79.6bn in August 2021, £1.0bn less than in August 2020. Interest payments on central government debt were £6.3bn in August 2021, £2.9bn more than in August 2020 but £2.3bn less than the monthly record of £8.6bn in June 2021. The recent high levels in debt interest payments are largely a result of movements in the Retail Prices Index (RPI) to which index-linked gilts are pegged. To estimate the RPI uplift for 3-month lagged index linked gilts in August 2021, the ONS references the RPI movement between May and June 2021, with the most recent RPI not yet feeding into the estimate.
·       Within total spending, net investment was £3.4bn in August 2021 (£4.5bn in August 2020).  

PSNB for the first five months of FY2021 totalled £93.8bn, £88.9bn less than the equivalent period in FY2020. It was the second-highest financial year-to-August borrowing since monthly records began in 1993. In March 2021 the OBR forecast a total PSNB for FY2021 of £233.9bn. Public sector net borrowing (PSNB ex) was estimated to have been £325.1bn in FY2020, an increase of £27.1bn compared with the ONS’s previous estimate; largely as a result of recording, for the first time, expected expenditure of £20.9bn on calls under the government loan guarantee schemes.

Concerning two other key metrics:
·       Public Sector Net Debt (excluding public sector banks, PSND ex) at end-August 2021 was £2,202.9bn (97.6% of GDP), the highest ratio since the 98.3% recorded in March 1963. At end-August 2020 the PSND was £2,018.7bn (96.0%) (table PSA1). Note that the Bank of England’s (BoE’s) contribution to debt is largely a result of its quantitative easing activities via the Bank of England Asset Purchase Facility Fund (APF) and Term Funding Scheme (TFS).
·       The public sector debt interest to revenue ratio (DIR) in the rolling 12-months to August 2021 was 4.0% (table PSA4), compared with 2.9% a year earlier, and below the 6.0% level set by the government as a target.

Source: ONS, “Public sector finances: August 2021”, 21 September 2021.

Read more
Retail sales fell 0.9% in August
17 September 2021

Retail sales volumes fell by 0.9% (MOM) in August, following a 2.8% fall in July, but they were still 4.6% higher than in pre-pandemic February 2020. They have fallen every month since April 2021. They were flat on a year earlier.

Food store sales volumes fell by 1.2% (MOM) in August 2021, with some evidence to suggest that the further easing of hospitality restrictions had an impact on sales; people increased their social spending such as eating and drinking at restaurants and bars. Non-food stores reported a fall of 1.0% (MOM) in sales volumes, driven by falls in department stores (negative 3.7%) and other stores, such as sports equipment and computer stores (negative 1.2%). Automotive fuel sales volumes rose by 1.5% (MOM) as people continued to increase their amount of travel; however, they remained 1.2% below their pre-pandemic February 2020 levels.

The proportion of retail sales online rose modestly in August to 27.7% from 27.1% in July, substantially higher than the 19.7% in pre-pandemic February 2020.

In the three months to August retail sales increased by 0.3% (QOQ), to be 4.0% higher (YOY). However, the percentage change over the past year should be interpreted with caution because of base effects. Lower than normal retail sales in mid-2020, impacted by store closures, social distancing and other covid restrictions.

Source: ONS, “Retail sales, August 2021”, 17 September 2021.  

 

 

Read more
ONS
house prices 8.0% annual increase in July
15 September 2021
According to official data, UK average house prices rose by 8.0% (YOY) in July 2021, after the tapering in the stamp duty holiday, down from 13.1% in June (Figure 1). The Stamp Duty Land Tax (SDLT) nil rate threshold (for England and Northern Ireland) was reduced from £500,000 to £250,000 on 1 July (and will revert to £125,000 on 1 October). The tax holiday ended on 31 March 2021 in Scotland and on 30 June 2021 in Wales. The UK House Price Index (HPI) is based on completed housing transactions. Typically, a house purchase can take six to eight weeks to reach completion.

Prices fell by 3.7% (MOM) on a non-seasonally adjusted basis in July and by 4.4% (MOM) on a seasonally adjusted basis.

The inflation rates for the UK’s four countries in July were: England (7.0% YOY), Wales (11.6% YOY), Scotland (14.6% YOY), and Northern Ireland (9.0% (2021Q2, YOY)). In England, there was, as always, a significant range across the nine regions (figure 4). The complete list of annual price changes is: North East (10.8%), South East (8.8%), West Midlands (8.5%), North West (8.1%), Yorkshire & Humberside (6.9%), East Midlands (6.9%), East (6.8%), South West (5.2%), and London (2.2%). London continued to be the region with the lowest annual growth for the 8th consecutive month.

 

Source: ONS, “UK house prices index: July 2021”, 15 September 2021.

 

Read more
Producer prices inflation rates rise to 5.9% (output) and 11.0% (input) in August
15 September 2021

The inflation rate for the output PPI (goods leaving the factory gate) increased to 5.9% (YOY) in August, the highest since November 2011, from 5.1% (YOY) in July (table 1). Petroleum products had the highest annual growth rate of any component of output prices in August 2021, at 50.4%, whilst “other manufactured products” provided the largest contribution to the change in the annual rate between July and August. Annual growth rates for this product group were being driven by prices of products of wood, cork, straw, and plaiting materials for domestic market.

The inflation rate for the input PPI (materials and fuels used in the manufacturing process) increased to 11.0% (YOY) in August, from 10.4% (YOY) in July (table 3). Crude oil had the highest annual growth rate of any component of input prices in August 2021, at 49.6%, but had a downward contribution to the change in the annual rate as it fell from 54.5% in July 2021. “Other produced materials” provided the largest contribution to the change in the annual rate between July and August. Annual growth rates for this product group were being driven by wood, sawn and planed for domestic market. Crude oil fell 3.8% (MOM) in August and was 49.6% higher YOY (table 5).

The annual rate of inflation for imported materials and fuels was unchanged at 4.6% (YOY) in August (table 4). Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight. Note that the sterling effective exchange rate index (ERI) edged up by 0.1% (MOM) in August and was 5.0% higher YOY (table 4).

 

Source: ONS, “Producer price inflation, UK: August 2021”, 15 September 2021.

Read more
CPIH inflation rate rose to 3.0% in August
15 September 2021

The CPIH inflation rate increased to 3.0% (YOY) in August, compared with July’s 2.1% (YOY), whilst the Consumer Prices Index (CPI) YOY rate increased to 3.2% in August, compared with July’s 2.0%. The largest upward contribution to the August 2021 CPIH YOY rate came from transport (reflecting higher fuel and second-hand car prices) with further large upward contributions from restaurants and hotels, housing and household services, and recreation and culture. The CPIH rose by 0.6% (MOM) in August 2021, compared with a fall of 0.3% (MOM) in August 2020.  

The ONS pointed out that the largest upward contribution to the change in the CPIH YOY rate between July and August was a base effect. In particular, in August 2020 many prices in restaurants and cafes were discounted because of the government’s Eat Out to Help Out (EOHO) scheme. Because EOHO was a short-term scheme, the upward shift in the August 2021 12-month inflation rate is likely to be temporary. At the same time (August 2020), a reduction in Value Added Tax (VAT) from 20% to 5% for the hospitality sector also contributed to a fall in prices (The government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT.) The reduced VAT rate is still in operation and is due to be increased for the hospitality sector from 1 October 2021 to 12.5% (until 31 March 2022). The ONS estimated that, if the EOHO scheme had not taken place last year, the CPIH 12-month inflation rate for August 2021 would have been 2.7% (0.3pp lower) and the CPI rate would have been 2.8% (0.4pp lower).

The YOY inflation rates for goods and services in August were 3.3% (2.5% in July) and 2.7% (1.8% in July) respectively (table 3). The core rate inflation (excluding energy, food, alcoholic beverages & tobacco) rose to 2.9% (1.9% in July).

 

Source: ONS, “Consumer price inflation, UK: August 2021”, 15 September 2021. CPIH is the Consumer Prices Index including owner-occupiers’ housing costs and is the ONS’s preferred measure of consumer prices inflation.

Read more
Annual earnings growth remained elevated in three months to July
14 September 2021

Annual growth in average total pay (including bonuses) was 8.3% and regular pay (excluding bonuses) was 6.8% among employees for the three months to July 2021 (table 1). However, the ONS pointed out that annual growth in average employee pay was being affected by temporary factors that had inflated the increase in the headline growth rate. These factors were base effects where the latest months are now compared with low base periods when earnings were first affected by the coronavirus pandemic, and compositional effects where there has been a fall in the number and proportion of lower-paid employee jobs, therefore increasing average earnings.

In real terms (adjusted for inflation), total and regular pay are now growing at a faster rate than inflation, at 6.0% for total pay and 4.5% for regular pay. Average real-pay growth rates are also affected by the base and compositional effects in the same way as nominal pay and should be interpreted with caution.

The ONS commented “…we estimate that the base effect will reduce the regular earnings growth rate by between 1.9 and 3.4 percentage points. In addition, we estimate the compositional effect at 0.2 percentage points below pre-pandemic levels” (see footnote). The net effect of the base effect and the compositional would be to reduce the regular earnings growth rate by between 1.7 and 3.2 percentage points, giving an “underlying” regular earnings growth rate of between 3.6% and 5.1%. The ONS added “…given the uncertainty around this range, interpretation should be treated with caution”.

Average total pay growth for the private sector was 9.6% in the three months to July 2021, while for the public sector it was 2.5%. Since the end of 2019, the public sector generally had stronger growth than the private sector, but since April 2021 the year-on-year comparison with a low base period has meant the private sector now shows stronger growth. All sectors saw positive growth, including all the industry groups within each sector.

 

Table 1 Growth in employee earnings (YOY, %), 3 months to July 2021

 

Nominal

Real

Actual:

 

 

·       Total pay (including bonuses)

8.3%

6.0%

·       Regular pay (excluding bonuses)

6.8%

4.5%

Underlying:

 

 

·       Total pay (including bonuses)

(5.1-6.6%)

·       Regular pay (excluding bonuses)

3.6-5.1%

 

 

 

 

Sources: (i) ONS, “Labour market overview: September 2021”, 14 September 2021; (ii) ONS, “Average weekly earnings in GB: September 2021”, 14 September 2021.  

Footnote on compositional effect: the ONS explained that their latest data showed the compositional effect was approximately 0.8%, compared with approximately 1.0% before the pandemic affected the workforce. To take into account the compositional effect that was present before the pandemic, this 1.0% is subtracted from the latest compositional effect of 0.8%. This resulting in difference of negative 0.2 percentage points, which is the first time since the pandemic that the compositional effect has been negative and “we see a reverse affect”.

 

 

Read more
Vacancies at a record high in the three months to August
14 September 2021

UK vacancies rose by 269.3k (QOQ) in the three months to August to 1,034k, which is the first time vacancies have risen over 1 million since records began, and is now 249,000 above its pre-pandemic January to March 2020 level. All industry sectors grew on the quarter and the majority reached record levels of vacancies. The largest increase was seen in accommodation and food service activities, which rose by 57,600 (75.4%).

Sources: (i) ONS, “Labour market overview: September 2021”, 14 September 2021; (ii) ONS, “Vacancies and jobs in the UK: September 2021”, 14 September 2021.

 

 

Read more
Labour market
further signs of recovery
14 September 2021

The latest data suggest that the labour market is continuing to recover. The labour market is, of course, still supported by the furlough scheme.

Firstly, early estimates from Pay As You Earn Real Time Information (PAYE RTI, HMRC data) show the number of payroll employees increased by 241,000 in August to 29.1mn, returning to pre-coronavirus pandemic (February 2020) levels. All regions except London, Scotland and South East are now above pre-pandemic levels.

Secondly, turning to the data for the three months to July (LFS data), employment increased in the quarter, whilst the unemployment rate eased.

Concerning employment (including the number of people temporarily away from work, including furloughed workers) and hours in the three months to July:
·       Employment rose by 183,000 (QOQ) to 32.36mn but was still 202,000 lower YOY.
·       The employment rate (the proportion of people aged 16-64 who were in work) was 75.2%, 0.5 percentage points higher QOQ but still 0.4 percentage points lower YOY.
·       Total actual hours worked increased by 43.2mn hours in the quarter to 1,006.8mn with the relaxation of coronavirus restrictions. However, this was still 45.4mn hours below pre-pandemic levels (the three months to February 2020).

Concerning unemployment and redundancies in the three months to July:
·       Unemployment fell by 86,000 (QOQ) to 1.55mn but was still 81,000 higher YOY. Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.
·       The unemployment rate (the proportion of the labour force that were unemployed, aged 16+) slipped to 4.6%, 0.3 percentage points lower QOQ but still 0.3 percentage points up YOY.
·       The inactivity rate (the proportion of people aged 16-64 who were economically inactive) was 21.1%, 0.3 percentage points lower QOQ but still 0.2 percentage points higher YOY.
·       The number of redundancies fell by 15,000 (QOQ) to 94,000 and was 62,000 down YOY. The redundancy rate is similar to pre-coronavirus pandemic levels.

The ONS pointed out that young people (those aged 16 to 24 years) had been particularly affected by the pandemic, with the employment rate decreasing and the unemployment and economic inactivity rates increasing by more than seen for those aged 25 years and over. Over the last quarter, however, there had been a strong increase in the employment rate and decrease in the unemployment and inactivity rates for young people.


Sources: (i) ONS, “Labour market overview: September 2021”, 14 September 2021; (ii) ONS, “Earnings and employment from Pay As You Earn Real Time Information, UK: September 2021”, 14 September 2021; (iii) ONS, “Employment in the UK: September 2021”, 14 September 2021. The unemployment rate can also be defined as the proportion of the economically active population (those in work plus those seeking and available to work) who are unemployed.

Read more
The total trade (goods & services) balance deteriorated modestly in July
10 September 2021

The total trade (goods & services, including precious metals) balance showed a deficit of £3.1bn in July 2021, as the goods deficit continued to outweigh the services surplus, compared with a deficit of £2.5bn in June (revised) (table 1).

Concerning the components (including precious metals):

·       The visible (goods) deficit widened to £12.7bn (from £12.0bn in June), as exports slipped by 1.0% (MOM) whilst imports rose by 1.1%. The deterioration reflected a worsening EU balance, the non-EU balance marginally improved. 

o   The deficit with the EU widened to £5.7bn (from £5.0bn) (table 2). Exports fell 6.5% (MOM), whilst imports fell by just 0.5%. Falling monthly exports of goods from EU countries in July 2021 were driven by medicinal and pharmaceutical products following an increase in June 2021, whilst falling imports of goods from EU countries were driven by slight falls in miscellaneous manufactures, particularly clothing and footwear.

o   The deficit with non-EU countries narrowed to £7.0bn (from £7.1bn) (table 2). Exports rose 5.0% (driven by oil) whilst imports rose 2.7% (driven by precious metals).

·       Concerning services, the surplus was marginally higher at £9.6bn (£9.5bn in June), as exports grew by 1.2% (MOM), whilst imports grew by 1.1%.

 

The ONS commented that “…exports to the EU overtook non-EU countries in May 2021 and remained higher in June 2021, however, non-EU exports became higher again in July 2021. This is likely because monthly data are erratic and therefore small movements should be treated with caution. Imports from non-EU countries continue to be higher than the EU for the seventh consecutive month. With the ongoing coronavirus pandemic and recession, it is difficult to assess the extent to which this reflects short-term trade disruption or longer-term supply chain adjustments”.


Source: ONS, “UK trade: July 2021”, 10 September 2021.

 

 

Read more
GDP grew just 0.1% in July, and was still 2.1% lower than in February 2020
10 September 2021

GDP increased by only 0.1% (MOM) in July, even though there was some further relaxation of government restrictions, and it was still 2.1% below pre-pandemic February 2020.

Concerning the industrial breakdown, production grew, services were flat, and construction contracted (tables GVA1-3):

  • The service sector remained broadly flat (MOM) in July and was still 2.1% below pre-pandemic February 2020 (also). Arts, entertainment and recreation activities grew by 9.0%, boosted by sports clubs, amusement parks and festivals, and reflecting the easing of restrictions on social distancing from 19 July 2021. But the output in consumer-facing services fell by 0.3% in July 2021, its first fall since January 2021, mainly because of a 2.5% fall in retail sales (mainly because of a fall in food and fuel sales). Overall, consumer-facing services are 6.7% below their pre-pandemic levels, compared with all other services, which are just 0.9% below.
  • Output in the production sector rose by 1.2% (MOM) and was the main contributor to GDP growth (but was still 2.1% below February 2020 (also)). Manufacturing was flat in the month, with the manufacture of machinery and equipment falling 4.3% (MOM). However, the manufacture of motor vehicles, trailers and semi-trailers grew by 11.4% (MOM) as reports of microchip shortages disrupting car production eased in July 2021. Mining and quarrying recovered in July (rising by 21.9% (MOM)), reflecting the reopening of an oil field production site, which had previously been temporarily closed for planned maintenance. Despite this growth, output in the extraction of crude petroleum and natural gas remained low by historical standards, with July 2021 output 19.1% below its July 2020 level.
  • Construction output contracted for a fourth consecutive month, with output down by 1.6% (MOM) in July 2021 and it was 1.8% below its pre-pandemic level (February 2020). The fall in monthly construction output in July 2021 was driven by falls in both new work (1.1%) and repair and maintenance (2.4%). Anecdotal evidence from businesses responding to the Monthly Business Survey for Construction and Allied Trades suggested that price increases, caused by delays in the availability and sourcing of construction products (notably steel, concrete, timber and glass), were the main reason for the decline.

 

In the three months to July GDP rose by 3.6% (QOQ), mainly reflecting growth in the services sector (4.5%). Production growth was just 0.4% whilst construction output fell 0.6%.

 

Sources: (i) ONS, “GDP monthly estimate: July 2021”, 10 September 2021; (ii) ONS, “Index of Production, UK: July 2021”, 10 September 2021; (iii) ONS, “Index of Services, UK: July 2021”, 10 September 2021; (iv) ONS, “Construction output in GB: July 2021”, 10 September 2021.

 

 

Read more