UK suffers productivity blow, as goods trade deficit hits record high - as it happened
Britain imported more from the rest of the world than ever before in August, but managed to export more to Europe
- IMF upgrades growth forecasts, press conference
- OBR to cut UK productivity forecasts
- NEWSFLASH: UK trade figures worse than expected
- Goods deficit surged over 14bn in August
- UK exports to EU have risen
- Total UK deficit widens to 5.6bn, from 4.2bn
Earlier:
- The agenda: How did UK economy fare in August?
- OBR to update on UK productivity problems at 11am
- IMF's world economic outlook released at 2pm BST
5.35pm BST
A rise in banking shares helped lift the FTSE 100 to a two month high, with brokers saying they should benefit from a soft Brexit. Better than expected industrial production figures helped outweigh a jump in the UK trade deficit.
But European markets edged lower on uncertainty ahead of the Catalan parliament discussing independence. (Our live blog on the meeting is here.)
4.58pm BST
The IMF predictions are too pessimistic for the UK and too optimistic for China and India, says Nikita Shah at Capital Economics, who is also more optimistic about a fiscal stimulus in the US next year:
The Fund dropped its assumption of a fiscal expansion taking place [in the US], due to "significant policy uncertainty". We think that Congress will pass a small fiscal stimulus early next year and that this will help to boost US GDP growth to 2.5% in 2018, a touch higher than the IMF's forecast of 2.3%.
[On the UK] the headlines focussed on the 0.3pps downgrade to the IMF's 2017 UK growth forecast from its projection in April. But this was partly due to the Fund catching up with weaker-than-expected growth early this year, which we had already incorporated in our forecasts. And although the IMF attributed this slowdown in the UK to the long-term adverse impact of Brexit starting to show, we think it instead reflects the (temporary) impact of the lower pound on consumers. Indeed, our forecast for GDP growth in 2018 of 2.2% is significantly higher than the IMF's of 1.5%...
4.02pm BST
The IMF's growth forecasts suggest the global economy could be getting back to normal after the battering it received during the financial crisis, suggests Aviva Investors. Senior economist Stewart Robertson said:
After five years (2013-2017 inclusive) when the IMF routinely revised its global growth expectations lower, they have for the second time in a row revised it higher for the year ahead. The differences may be quite small, but the fact they are in a positive direction is news in itself. Having got used to regular disappointments, successive growth upgrades are an indication that things are perhaps changing in a good way - the economic expansion has become more entrenched. Solid foundations now provide a sound base for ongoing growth and slow normalisation after ten-years of doubt and setback.
At today's press conference in Washington the IMF was keen to highlight that growth outcomes in the first half of 2017 were stronger than expected and also that the continuing economic recovery had become more broad-based. This being the IMF, however, it was not all good news. It was noticeable that compared to as recently as July, the UK was the only major developed nation not to receive an upward growth revision. The reasons for this are well-documented, largely the result of weaker consumer spending. Looking further ahead, the IMF referred to the "highly uncertain" medium-term outlook, a direct consequence of Brexit. The last time that Britain was such a notable underperformer was in the dark days of the 1970s. Let's hope it is cyclical this time, not structural.
3.57pm BST
More from Ireland:
There were two new initiatives in the Irish budget prompted by concerns over public health.
First, a Sugar Tax of 30 cents per litre on soft drinks which have between five and eight grams of sugar per 100 millilitres in them.
3.43pm BST
The IMF's forecasts have had little impact on the markets, reckons Connor Campbell, financial analyst at Spreadex:
[The IMF} was relatively upbeat this Tuesday, stating that the world economy should grow by 3.7% in 2017, up from 3.2% in 2016, while maintaining those levels in 2018. However, the IMF wasn't so positive about the UK, stating it was an 'exception' to the overall chirpy outlook due to the uncertainty of Brexit, and the subsequent impact on wages and household spending.
Yet...none of this made too much difference to investors. Cable continued to chug along with a 0.3% to 0.4% rise, while sterling dipped 0.1% to 0.2% against the euro. The FTSE rode the pound's inconsistent performance to a 20 point increase, while the DAX and CAC fell 0.4% and 0.2% respectively off the back of the euro's half a percent jump against the dollar (a move that was already in place before the IMF upgraded the Eurozone's growth forecasts).
3.27pm BST
More on the Irish budget. Henry McDonald writes:
Ireland's budget for 2018 has included some extra measures to help smaller and medium businesses cope with the impact of Brexit.
Paschal Donohoe, Irish Finance Minister, has announced a Brexit Loan Scheme for the small business sector in the Republic. SME's employ 69 per cent of the Irish workforce. a25m is being set aside to help small businesses in the agri-food sector.
3.24pm BST
He is asked about his first impressions of Donald Trump's tax plans, and if he won't answer that, could he say what would be an appropriate plan?
Obstfeld says, "Aren't we on the second impression at least?"
3.07pm BST
The Guardian's Larry Elliott asks about the risks to the outlook that the IMF has identified, and says the financial markets do not seem to be taking these on board. Are the markets being irrationally exhuberant?
Obstfeld jokes that it is fitting that Richard Thaler won the economics Nobel prize yesterday ( irrationality being one of his themes) although he adds "he wan't the irrational exhuberance guy" (that was of course Alan Greenspan.)
2.48pm BST
The IMF is asked about the effects of the recent hurricanes and tropical storms.
Obstfeld says they will obviously have a big impact on the regional outlook, less so on the global outlook. He says, "We stand ready with our rapid financing facility if that is needed."
2.39pm BST
Wall Street has opened higher, with the Dow Jones Industrial Average up around 55 points or 0.25%.
US stocks open higher today, IMF upgrade to world growth may help sentiment, risk sentiment remains supportive, Vix just above 10 today.
2.36pm BST
On the US:
IMF's Obstfeld: In 'Wait-And-See' Mode On US Policy
IMF's Obstfeld: US Growth Upgrade Was Based On Strong Data In H1, Not Tax Plan
2.34pm BST
The IMF is asked by a Portuguese journalist about the situation in Catalonia.
Obstfeld says the situation in Spain is concerning, there is a lot of uncertainty, and we can only hope the parties do not act precipitously [but] negotiate. There are a lot of potential gains on both sides if they do settle.
2.30pm BST
The IMF are now taking questions on the world economic outlook.
The panel is asked about Brexit, and the impact on the UK and European economies if no deal is agreed?
2.15pm BST
IMF declares Canada the winner of the fastest growing G7 economy competition for 2017. UK & US 2017 forecasts lower than April's WEO. pic.twitter.com/ibEcZ4OeIM
2.11pm BST
Global economy gaining strength, with growth marked up at 3.6% this year and 3.7% for 2018 #WEO https://t.co/i8QzV8jOkB pic.twitter.com/1BZvEp12R7
2.02pm BST
And here is Larry Elliott's analysis of the IMF report:
Related: Won't get fooled again: IMF warning shows it's learned from past errors | Larry Elliott
2.00pm BST
Ahead of its annual meeting in Washington later this week, the International Monetary Fund has issued its latest update on the global economy. Larry Elliott writes:
The International Monetary Fund has said the global economy's recent recovery may not last, despite a pickup in activity in all western countries except the UK.
Marking the 10th anniversary of the onset of the financial crisis, the IMF said there was a risk that governments could be lulled into a false sense of security by booming markets and policymakers needed to guard against complacency.
Related: Global economic recovery may not last, warns IMF
1.46pm BST
If NIESR's estimate is right, the UK economy probably grew slower than the rest of Europe, for the third quarter in a row.
@NIESRorg GDP estimate shows slightly higher #UK GDP growth in Q3 than in Q2, however still weaker than rest of Europe $EURGBP pic.twitter.com/i87rFwE80A
1.28pm BST
Just in: Britain's economy probably grew by 0.4% in the last three months.
That's according to the latest monthly forecasts from the NIESR thinktank.
Our monthly estimates of GDP suggest that output grew by 0.4 per cent in the third quarter of this year #NIESRGDP pic.twitter.com/a1IzuIYDLw
Although economic growth is likely to be a touch stronger in the second half of this year compared with the first, it is important to note that activity has slowed since last year and this at a time when real GDP growth in other major economies such as the Euro Area and the USA has strengthened. Looking ahead, we expect the pattern of demand in the UK economy to rebalance towards international trade in response to strengthening global growth and weaker sterling and away from domestic demand.
1.11pm BST
Over in parliament, business minister Claire Perry has told MPs that the government "stands ready" to help BAE Systems workers.
Perry said the government would work to avoid compulsory redundancies at the company (but isn't giving much detail about how, exactly).
Minister says #BAE decision "normal business practise" and nothing to do with any gov procurement decisions - derisive snorts from #Labour
Labour's @NiaGriffithMP says one way to help #BAE is for government to order new Hawk aircraft for the Red Arrows
Minister taking questions on BAE. Each answer basically a variation of: "we're busy flying the flag" for British exports
12.58pm BST
There's no lack of productivity at the OBR, though. They've created a handy little video on Britain's productivity problems:
FER17: as productivity growth disappoints again we review our forecast assumptions and the rationale underpinning them. pic.twitter.com/gPLo7NxX1l
12.44pm BST
Over in Ireland, Taoiseach Leo Varadkar says there will be "no bonanza" and "no fireworks" in today's budget.
12.39pm BST
The solution to Britain's productivity problem must include raising skills levels among the nation's workers, says TUC General Secretary Frances O'Grady:
"Britain's productivity headache is a self-inflicted wound. Years of cuts, low public investment, and rising job insecurity have taken a heavy toll.
"Ministers need to return to the drawing board. Our yawning productivity gap is holding our economy back.
12.31pm BST
Making predictions is very difficult, especially about the future, as the old saying has it.
The OBR doesn't shy away from this either. Today's report shows how it has been too optimistic about UK growth and business investment, and also expected interest rates to be rather higher today.
12.18pm BST
Heads-up: I've just posted a new version of the UK trade data chart (in the 9.58am post) showing how imports hit a record high in August. You might need to refresh to see it.
11.59am BST
The OBR says there are several reasons why UK productivity growth has been so disappointing.
1) Firms aren't spending enough on new equipment and infrastructure. Business investment today is just 5 per cent above its pre-crisis peak almost a decade ago, compared to 63% after the 1980s recession.
OBR Forecast Evaluation Report is out. Unsurprisingly majors on productivity assumptions given how reality has failed to match expectations pic.twitter.com/2hx63ATwXw
11.36am BST
Lower productivity = lower economic growth.
OBR had previously forecast an increase of 1.6% in 2017.
OBR says productivity revisions will hit GDP growth forecast. pic.twitter.com/k8TkbFMkW3
11.30am BST
The Office for Budget Responsibility has announced that it expects to "significantly" downgrade its estimates of Britain's potential productivity growth.
The fiscal watchdog, which is independent of the government, has admitted that it has been too optimistic over productivity for many years.
While we continue to believe that there will be some recovery from the very weak productivity performance of recent years, the continued disappointing outturns, together with the likelihood that heightened uncertainty will continue to weigh on investment, means that we anticipate significantly reducing our assumption for potential productivity growth over the next five years in our forthcoming November 2017 Economic and Fiscal Outlook.
11.14am BST
In a blow to Britain's manufacturing base, arms manufacturer BAE has announced plans to cut almost 2,000 jobs.
The axe will fall heavily on BAE's factories in Lancashire, including its site at Warton on the outskirts of Preston.
Related: BAE Systems to cut nearly 2,000 jobs
On this day in 2010 David Cameron said defence spending would fall by 8% over 4 years. 42k jobs, HMS Ark Royal, Harrier & Nimrod jets axed. pic.twitter.com/GMAlRqwzHV
11.07am BST
This morning's trade, industrial production and construction data paint a mixed picture of the UK economy, says Kate Davies of the Office for National Statistics.
Commenting on today's Short-term economic indicator figures, ONS senior statistician, @StatsKate said: https://t.co/uIAp3H3Yfc pic.twitter.com/v9kEJ8x9dI
11.05am BST
You can see the UK trade data yourself, here.
UK's total trade deficit, excluding erratic items, widened by 2.9bn to 10.8bn in the 3 months to August https://t.co/AiFYMLCB5p
10.50am BST
The Sun's political editor is also struck by the rise in EU exports:
Today's @ONS trade figures: exports to EU growing, non-EU countries shrinking. Reversal from eurozone crisis years. pic.twitter.com/cCxiJABEmK
10.48am BST
Britain's trade figures are no better if you strip out 'erratic' elements, such as trade in gold, precious stones and aircraft, and oil.
UK balance of trade in goods, excluding erratics and oil. I know the big rebalancing towards exports is coming, I can feel it in my bones. pic.twitter.com/LXADwfuTDm
10.44am BST
In better news, UK manufacturing output rose by 0.4% in August, better than expected.
That means British factories have enjoyed their best quarter of growth since February.
"Industrial Production rose by 0.9% in the three months to August, with the largest contribution coming from manufacturing. Construction output also picked up slightly in August, boosted by infrastructure and private house building. These figures will feed into the first estimate of Q3 GDP, ahead of the next MPC meeting in November.
A majority on the MPC appear committed to a rate hike at that meeting, which is now 80% priced in by the market."
10.38am BST
Labour MP Stephen Doughty says the widening of Britain's trade deficit is "alarming news", and shows the dangers of leaving the EU single market.
"We were repeatedly told that crashing the pound would result in a major boost for British exports. But 15 months on we are still waiting, as Britain's trade deficit with the rest of the world continues to widen.
"These figures only serve to underline how reckless it is for the Government to be wrenching the UK out of the Single Market, our largest export market right on our doorstep, in pursuit of fantasy trade deals on the other side of the world."
Still no clear sign that weakened pound has been a boost for UK trade in an improved global economy.
Record goods trade deficit.
10.25am BST
Brexit didn't stop the UK expanding its exports to other European countries over the last three months.
Today's report shows that Britain sold an extra 1.7bn of goods to the EU in June-August, but suffered a drop in sales to the rest of the world.
Exports of goods to non-EU countries decreased by 4.0 billion (8.8%) between the three months to May 2017 and the three months to August 2017. As shown in Figure 2, almost half was due to a decrease in fuel exports (1.9 billion).
Exports of goods to the EU increased by 1.7 billion (4.1%) between the three months to May 2017 and the three months to August 2017, due to machinery and transport equipment exports increasing by 0.8 billion, and smaller increases elsewhere.
Who needs EU trade oh wait pic.twitter.com/zL5yZZhC41
10.21am BST
The widening of Britain's trade deficit last month is a disappointment, says Suren Thiru, head of economics at the British Chambers of Commerce.
Thiru writes:
Taken together with the recent widening of the current account deficit, the figures paint a rather gloomy picture of the UK's external position.
"The latest trade data is further evidence that the decline in sterling's value over the past year is doing little to boost the UK's overall trade position. Businesses continue to report that the post-EU referendum weakness in sterling is hurting as much as its helping, with firms continuing to face higher input costs due to the weakening currency, particularly those locked into global supply chains.
10.04am BST
As Ben Chu of the Independent points out, the drop in the pound last year hasn't revitalised Britain's exports:
Record high UK trade in goods value deficit in August. No sign of currency-driven rebalacing yet. @TheIndyBusiness https://t.co/KfWFlT7e8a pic.twitter.com/PGNBqUGmEw
9.58am BST
Britain's imports of goods from the EU hit a record high last month.
The UK imported 22bn of physical items from Europe in August, but only exported 14bn, according to today's report.
9.38am BST
Breaking: Britain's trade in goods deficit with the rest of the world has hit a record high.
The gap between what the UK bought and sold widened to 14.245 in August, the Office for National Statistics reports.
UK's good trade deficit hits record high in August due to jump in imports of chemicals, machinery and textiles @ONS
*U.K. AUG. TOTAL TRADE DEFICIT WIDENS TO GBP5.6B
So, about that rebalancing
9.23am BST
The pound is creeping higher in early trading, gaining 0.4 of a cent to almost $1.319.
That's its highest level since last Wednesday, when Theresa May's 'nightmare' party conference speech sparked speculation over her future.
9.15am BST
Domino's Pizza shares are having a sizzling morning, jumping almost 11% in early trading and outperforming the rest of the London market.
Domino's is a cash generative business model and significant potential to add new stores in the UK and overseas. Domino's are winning market share in the pizza delivery sector, not least due to the strength of their online ordering platform, which saw online sales in the UK rise 17.4%.
In Q3, Domino's turned up the marketing heat, with a "Dine for 9.99" offer and customers responded strongly, despite increasing competition in the online food delivery sector from Just Eat, Deliveroo and Uber Eats.
- Asia shares mixed
- Japan steel scandal
- Dollar declines
- Lira steadier
- Oil higherhttps://t.co/xmMuboLJz1 pic.twitter.com/03KrMODfvt
8.40am BST
Economics blogger Jeroen Blokland is impressed by this morning's German trade figures:
New day, same story. German macro data beats estimates. Exports rise 3.1% in August, almost triple the increase expected. #EUROBOOM pic.twitter.com/2ztPyok4FN
The #EUROBOOM in one chart! Eurozone macro surprises have not fallen below zero for over a year. pic.twitter.com/ozZjrQb4jH
8.32am BST
Just in: French industrial production fell unexpectedly in August, by 0.3%
French industry down in August. Q3 still looks positive, but now unable to repeat Q2's stellar performance. My take: https://t.co/igXkPwEIAR pic.twitter.com/5NnB3Lo1eF
8.24am BST
Germany's trade surplus has widened again, as Europe's largest economy continues to enjoy a good year.
German exports in August 2017: +7.2% on August 2016 https://t.co/KUiu2XXvza #foreigntrade #economy pic.twitter.com/fuk8DjpPXV
7.49am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
UK trade is on everyone's mind right now, with the Brexit negotiations struggling to make meaningful progress and the risks of no deal rising. So economists will be poring over the latest trade figures, due this morning, to see what shape Britain's economy is in.
UK goods export volume growth hits 9-month low in July.
The fact it's growing at all is down to EU exports - worth bearing in mind! #Brexit pic.twitter.com/WEbUwFBdHA
All these OBR forecasts on UK Productivity, not one close to being correct, but remember GERS is flawless pic.twitter.com/dMcKgM2jXF
Related: BAE Systems 'planning 1,000 job cuts'
Domino's Pizza strong growth
System sales +21%
UK +12% -online +17%
Strong progress Intl
"UK consumers uncertain & focus value"
European opening call @LCGTrading $FTSE -6 points at 7501$DAX -21 points at 12955$CAC -3 points at 5362$IBEX -40 points at 10196
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