Pound hits six-week high as UK returns to growth in July - as it happened

Graeme Wearden

from on 2019-09-09 15:42 (#4PXNJ)

UK economy didn't post any growth in the last quarter, but GDP did pick up in July alone

Experts: UK should avoid recession
Breaking: UK GDP rose by 0.3% in July
But economy stagnated over the last quarter
Pound shakes off losses
Introduction: Why July's GDP report matters

4.42pm BST

Finally, the pound's rally has seen the FTSE 100 close 46 points lower at 7,235, down 0.65%.

Fiona Cincotta of City Index says Brexit optimism played a part, alongside the growth figures:

The FTSE languished in the red at the start of the trading week, beaten down by the strengthening pound and a slump at Primark owner AB Foods. As sterling rose to six-week highs on renewed Brexit optimism and stronger data, the multinationals on the FTSE sunk lower owing to the unfavourable exchange rate.

There was no getting way from Brexit as the new week kicked off, hardly surprising given the flow of headlines across the weekend. However, today it was Boris Johnson's softer approach to Brexit that grabbed traders' attention. Bojo sounding keen to get a deal done when he was speaking with the Irish Prime Minister helped boost demand for the pound, as did signs that the UK economy was holding up even as Westminster was crumbling.

3.39pm BST

In a surprise reversal of roles, CNN is accusing Donald Trump of Fake News!

In case you hear differently, CNN is having its most profitable year in history. Last month the network delivered its highest August ratings on record and won the prime time demo - beating both Fox and MSNBC. "aTMi

2.33pm BST

Time for a recap.

Fears that Britain is sliding into recession have eased, after the economy posted its strongest monthly growth since January.

"Mechanically the 0.3% rise in July very much improves the chance of the UK avoiding a technical recession this quarter.

However, combined with the picture coming from business surveys, the data still looks consistent with weak underlying growth in the UK economy as the next Brexit deadline approaches."

2.13pm BST

Over on Wall Street, activist investor Elliott Management has taken a $3.2bn stake in telecoms giant AT&T.....and Donald Trump has weighed in.

Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible "anchors." Also, I hear that, because of its bad ratings, it is losing a fortune.....

...But most importantly, @CNN is bad for the USA. Their International Division spews bad information & Fake News all over the globe. This is why foreign leaders are always asking me, "Why does the Media hate the U.S. sooo much?" It is a fraudulent shame, & all comes from the top!

1.56pm BST

Anyone needing a rest after the excitement of this morning's GDP figures should head to Heathrow Airport.

The start of a 48-hour walkout by British Airways pilots forced the national carrier to cancel virtually all flights on Monday, with no sign of a resolution ahead of more planned strikes.

Heathrow Terminal 5, BA's main operating hub, was virtually deserted, when it would normally be bustling with passengers. BA carries about 145,000 passengers on an average day.

1.43pm BST

In other news, the PPI scandal continues to rumble on.

Lloyds Banking Group has hit shareholders with another 1.8bn provision to compensate customers who were mis-sold insurance policies alongside financial products such as credit cards and mortgages.

1.22pm BST

The pound's strength has pushed the FTSE 100 index of blue-chip London-listed shares down to a one-week low.

The Footsie has lost 45 points, or 0.6%, with most sectors down - led by healthcare firms, consumer groups, industrial companies and miners.

1.09pm BST

Relief that the UK may be dodging a recession has swept the pound up to a new six-week high.

Sterling has hit $1.2380 against the US dollar for the first time since 26 July, a couple of days after Boris Johnson beat Jeremy Hunt to the leadership of the Conservative Party.

November 28th the new - possible date - doing the rounds for a General Election

12.38pm BST

Today's GDP report has sent economists racing to update their forecasts.

NIESR, the think tank, now estimates that the UK will grow by 0.3% in the third quarter of 2019, returning to growth after its Q2 contraction. That's up from 0.2% previously - underlining that July's growth figures (+0.3%) beat forecasts.

"It looks like there has been a welcome resumption of economic growth in the third quarter, roughly offsetting the fall in the second quarter. But it is not clear how long growth will continue.

Only the services sector is expanding, primarily to meet higher demand from consumers driven by increased household incomes fuelled by rising real wages. But there is a limit to how much further real wages can grow without a pick-up in investment and productivity, and this seems unlikely in the near term."

OUT NOW - #Economic growth resumes for now but only #services sector is expanding - Our latest monthly #NIESRGDP Tracker explains here:
https://t.co/tadO8H3zCK

11.53am BST

Britain's Federation of Small Businesses is calling for an emergency budget to help the economy avoid a Brexit-induced recession.

"The very prospect of a sudden, chaotic no-deal Brexit in less than eight weeks' time is proving enough to have a sustained chilling effect on output. That's why the Government needs to intervene with an Emergency Brexit Budget that will take the heat off employers, support our high streets and push back premature tax changes.

"Getting our economy back on track starts with securing a pro-business Brexit deal. Three years on from the referendum, business owners are sick to the back teeth of parliamentary posturing.

"It's interesting to note the GDP uptick in the month of July, driven by manufacturers and construction firms.

It's possible that stockpiling is once again having an impact but - having already been marched up the hill only to be marched back down again earlier in the year - we shouldn't bank on a big stockpiling-linked GDP bump of the kind we saw in Q1."

11.34am BST

Although today's GDP report did beat expectations, it still shows that the UK economy has been stagnant over the last quarter -- hardly a sparkling effort.

John Westwood, group managing director of Black Tower Financial Management urges caution about celebrating too much:

Today's GDP update will be welcomed by many, especially Boris Johnson. Growth is up from -0.2% to 0%; better than all forecasts predicted.

Brexit recession fears have eased for many analysts, however I would still tread a line of caution as this may not represent the full picture.

11.08am BST

It's a nice change to see the pound rallying on the back of economic data, rather than plunging in the face of a political crisis.

Philip Shaw of Investec tweets:

Sterling actually moving on UK fundamental news" currently trading at $1.2350. The 0.3% monthly rise in GDP in July certainly overstates the economy's underlying momentum. Even so it has sharply reduced the risks of a Q2/Q3 recession. pic.twitter.com/s03N29ozjM

11.01am BST

Our economics editor Larry Elliott writes:

The chances of the UK avoiding recession have improved following a better-than-expected 0.3% increase in activity in July.

Data from the Office for National Statistics showed that all sectors of the economy registered growth in the month - the first of the third quarter.

10.37am BST

PwC chief economist John Hawksworth also fears that a disorderly Brexit could plunge Britain into a recession.

If a reasonably smooth exit from the EU can be achieved, then we remain optimistic that UK growth could bounce back to over 1% next year as business investment recovers and public spending picks up in line with the plans announced by the Chancellor last week.

"But if there is a disorderly Brexit, the UK economy could be tipped into recession. And if there is a prolonged period of political limbo with no clear resolution of the Brexit issue, then businesses could continue to defer major investment decisions, causing the UK economy to continue to stall."

10.32am BST

Today's growth figures are a rare piece of good news for Boris Johnson (who is in Dublin today).

Professor Costas Milas of Liverpool University argues the prime minister can take three steps to avoid a no-deal recession in 2020.

Today's GDP figure provides Prime Minister Boris Johnson with an unexpected economic lifeline as it eases fears of a looming recession. Rolling-three month (quarter-on-quarter) growth is up from -0.2% in 2019 Q2 to 0% in the period from May to July 2019.

No growth at all is better than negative growth and should help focus political minds. Indeed, a Brexit-related UK recession is far from certain and should not be too late for Boris Johnson to change course.

10.21am BST

10.20am BST

Lukman Otunuga, senior research analyst at ForexTime (FXTM), points out that pound is one of the best-performing currencies today, partly thanks to the GDP figures.

Not a bad start to the week for the #Pound unlike the UK weather...bulls are loving the stronger than expected #July #GDP and conciliatory tone and from #BorisJohnson on getting a deal done by 18 October...will this upside last though? #GBPUSD > 1.2320. pic.twitter.com/y0Dg8aXApp

10.15am BST

Paul Dales of Capital Economics suspects a new burst of Brexit stockpiling may be helping the UK avoid recession.

The 0.3% m/m rise in services GDP followed four months of no change and was partly due to a 1.1% m/m rise in transport and storage output.

The latter is the first real sign that businesses could be bringing activity forward ahead of the possible 31st October Brexit deadline.

"Seldom has stagnation seemed like such an achievement.

"Despite sharp falls in both manufacturing and construction output, Britain's vast service sector has ridden to the rescue once more - dragging the net position up to zero.

Monthly GDP figures just out - in July up 0.3%, from 0 in June. In the three months to July - zero growth. But strongly suggesting return to growth in Q3, albeit Q3 hasn't finished yet - so recession not looking likely. https://t.co/E1r1l1Ide7

The 0.3% m/m rise in UK GDP in July is the strongest since January and wasn't obviously assisted by any one-off stimuli. Quarter-on-quarter growth on track for 0.4% in Q3 a' so emphatically no recession, and no Bank Rate cuts coming soon (at least this side of Brexit). pic.twitter.com/6Tgdsc2SZi

Better news on the economy in today's GDP figures for July, with month-on-month growth at its strongest since January. But the 3m-on-3m picture is flat, and more timely survey data suggests activity was subdued over the summer as a whole pic.twitter.com/VXqZgaydaQ

9.58am BST

Today's GDP report also shows how Brexit stockpiling has distorted growth this year.

9.54am BST

The growth report has given the pound a small lift. Sterling has shaken off its earlier losses, and is now up 0.25% today at $1.231.

9.41am BST

The broad picture is that Britain's economy has weakened this year, warns Rob Kent-Smith, head of GDP at the ONS.

He points out that factories and builders both suffered falling output in the last three months, which is why there was no growth in May-July.

"GDP growth was flat in the latest three months, with falls in construction and manufacturing.

"While the largest part of the economy, services sector, returned to growth in the month of July, the underlying picture shows services growth weakening through 2019.

9.39am BST

Let's dig into the detail of the GDP report.

According to the ONS, Britain's services sector grew by 0.3% in July, providing the bulk of the growth.

9.35am BST

The Office for National Statistics says UK GDP remains "weak", with no growth in the last three months (despite the recovery in July).

9.31am BST

Newsflash: The UK economy grew by 0.3% in July.

That's stronger than the 0.1% expected, and could dampen fears of a Brexit recession this autumn.

9.16am BST

Despite worries about the global economy, investors are pushing stock markets higher this morning.

Beijing can take the credit. Over the weekend, China's central bank launched a new stimulus package of cheap loans, to protect its companies from the latest US tariffs.

9.06am BST

The UK isn't alone in suffering weak growth.

The eurozone only expanded by 0.2% in April-June, Germany may be falling into recession, and the US-China trade war is causing turbulence worldwide.

31 out of 36 OECD countries have reported GDP figures for Q2 2019. Hungary top of the table (5.2%y/y) with Turkey at the bottom (-1.4%y/y). US top of the G7 (2.3%y/y) with Germany (0.4%y/y) & Italy (-0.1%y/y) at the bottom. UK's 1.2%y/y puts just behind France (1.4%y/y). pic.twitter.com/dJMydilgyU

8.50am BST

This chart from Bloomberg shows how UK growth has been choppy recently, vanishing altogether in the second quarter of 2019.

8.33am BST

Deutsche Bank's Sanjay Raja hopes that the service sector will keep Britain out of recession this summer, telling clients:

Outside of another momentous week in politics, next week's data docket will be very important for the economy. On Monday, we will get a first glimpse of Q3 activity with the July monthly GDP reading out in the morning.

If survey indicators are anything to go on, we should continue to see widespread weakness across the economy, with manufacturing, construction and services sectors all dropping. However, we don't expect the economy to shrink in July. Instead, we see a modest bump in activity (0.1% m-o-m), driven in large part by the services sector. With retail spending and government consumption up in July, we think this will be enough to prop up the economy.

8.08am BST

Here's some grim news - Northern Ireland's private sector economy may have already plunged into recession.

A new survey of companies across Northern Ireland has found that output and new business fell sharply in August, forcing companies to cut staff as business confidence hit a new low.

"The latest PMI provides further evidence that Northern Ireland's private sector has entered, or is entering, recession.

Output has fallen for the sixth month in a row and exports have declined for the seventh month. Add to this an eighth successive month of falling employment and it is hard to avoid this conclusion.

7.51am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Our economists note that the Q1 outturn of 0.5% q/q was boosted by stockpiling by firms ahead of the end-of-March original Brexit date. The unwind of those efforts plus car plant shutdowns in April then dragged Q2 growth lower to -0.2% q/q.

Those Brexit-induced distortions are also likely to affect Q3 GDP; whether stockpiling by firms resumes ahead of the new Brexit deadline of October 31 and how much of April's 'lost' car production will now take place in August will be major influences on Q3 GDP.

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