Monthly Economic Review
May 2017
(Based on April 2017 data releases)
Monthly headlines:
• UK economic growth slows in Q1 as output from consumer-focused industries weakened
• UK consumer price inflation holds steady, but wage growth slows further
• US GDP growth weakens as the outlook for the Eurozone continues to improve
3.0
0.8
2.5
0.6
2.0
0.4
1.5
0.2
1.0
-0.4
Quarterly
2017 Q1
2016 Q4
2016 Q3
2016 Q2
2016 Q1
2015 Q4
2015 Q3
2015 Q2
2015 Q1
2015 Q1
2014 Q4
2014 Q3
2014 Q2
2014 Q1
2013 Q4
2013 Q3
2013 Q2
2013 Q1
2012 Q4
2012 Q3
2012 Q2
2012 Q1
0.0
-0.2
Annual GDP Growth %
Quarterly GDP growth %
3.5
0.5
0.0
Annual (RHS)
Source: ONS GDP first estimate, Q1 2017
Chart 2:UK GDP by Sector, Q1 2017
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Services
Production
Construction
Agriculture
Source: ONS GDP first estimate, Q1 2017
Chart 3: CPI inflation
6
5
4
3
2
1
0
Source: ONS Retail Sales data, May 2015
Mar-17
Mar-16
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
CPI Inflation
Mar-08
Mar-07
Mar-06
Mar-05
BCC Monthly Economic Review
Mar-04
Mar-03
-1
Mar-02
05/05/2017
4.0
1.2
Mar-01
…as inflation continues to bite…
UK CPI inflation stood at 2.3% in March 2017,
unchanged from February but still above the Bank of
England’s 2% target (see Chart 3). Rising prices for
food, clothing and footwear were the main upward
contributors to change in the rate. However, this was
offset by a 23% fall in air fares in March which
reflected the shift in the timing of Easter from March
to April compared to last year. However, as both the
latest QES and official data confirms, the continued
strength in costs at the factory gate suggests that
consumer prices will resume their upward trend in
the coming months.
1.4
1.0
GDP Growth %
...driven by weaker service sector output…
Weakening GDP growth in Q1 was mainly due to
growth in service sector output, which accounts for
over three quarters of UK economic output, slowing
to 0.3% in Q1, from 0.8% in Q4 2016 (see Chart 2).
This slowdown reflected declines in output from
consumer-focused industries such as retail sales and
accommodation services. However, the service
sector was still the main driver of the economic
activity in the quarter, with industrial production
(+0.3%), construction (+0.2%) and agriculture (+0.3%)
output adding little to overall UK growth.
Chart 1: Real GDP Growth
Annual inflation rate %
UK GDP growth slows in Q1 2017...
The UK economy grew by 0.3% in Q1 2017, slower
than the growth of 0.7% recorded in Q4 (See Chart
1). In annual terms, the UK economy grew by 2.1% in
Q1, up from the growth of 1.9% recorded in Q4. UK
economic output is now estimated to be 8.8% above
its pre-recession peak in Q1 2008. Overall, the first
estimate of UK GDP for Q1 2017 supports our view
that growth in the UK economy is becoming more
subdued. The BCC is currently forecasting growth of
1.4% for 2017 as a whole and if realised it would be
the weakest rate of growth since 2012.
BoE Inflation Target
Source: ONS Consumer Price Inflation, March 2017
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05/05/2017
%
2
1
-1
Dec-Feb 2012
Feb-Apr 2012
Apr-Jun 2012
Jun-Aug 2012
Aug-Oct 2012
Oct-Dec 2012
Dec-Feb 2013
Feb-Apr 2013
Apr-Jun 2013
Jun-Aug 2013
Aug-Oct 2013
Oct-Dec 2013
Dec-Feb 2014
Feb-Apr 2014
Apr-Jun 2014
Jun-Aug 2014
Aug-Oct 2014
Oct-Dec 2014
Dec-Feb 2015
Feb-Apr 2015
Apr-Jun 2015
Jun-Aug 2015
Aug-Oct 2015
Oct-Dec 2015
Dec-Feb 2016
Feb-Apr 2016
Apr-Jun 2016
Jun-Aug 2016
Aug-Oct 2016
Oct-Dec 2016
Dec-Feb 2017
0
-2
Real earnings growth
Annual earnings growth
CPI inflation
-3
Source: ONS Retail Sales, March 2017
Chart 5: Retail Sales
3
2.5
2
1.5
1
0.5
2016 Q3
2015 Q1
2013 Q3
2012 Q1
2010 Q3
2009 Q1
2007 Q3
2006 Q1
2004 Q3
2003 Q1
2001 Q3
2000 Q1
1998 Q3
-0.5
1997 Q1
0
-1
-1.5
-2
-2.5
Source: ONS Retail Sales, March 2017
Chart 6: UK's Net Trade Position
3
2
1
0
-1
-2
-3
-4
-5
-6
BCC Monthly Economic Review
Source: ONS UK trade, March 2017
PAGE 2 OF 4
Feb-17
Feb-16
Feb-15
Feb-14
Feb-13
Feb-12
Feb-11
Feb-10
Feb-09
Feb-08
-7
Feb-07
...as the UK’s trade deficit widens...
The UK trade deficit widened by £0.7 billion to £3.7
billion in February 2017 (see Chart 6). This was driven
by a £0.3 billion rise in imports and a £0.4 billion
decline in exports. However, in the three months to
February 2017, the trade deficit did narrow by £0.3
billion to £8.5 billion. Trading conditions for UK
exporters are likely to improve over the near term as
weaker sterling and an improving global economic
outlook boost demand for UK goods and services.
However, the extent of the improvement is likely to
be limited by the rising cost of imported goods and
raw materials.
3
3m/3m change %
...and stifling consumer spending…
Retail sales fell by 1.8% in March. On the rolling three
month-on-three-month measure – a more reliable
indicator of the underlying trend – retail sales
dropped by 1.4% in Q1 2017, the biggest decline since
Q1 2010 (see Chart 5). Increasing prices have largely
driven this slowdown with average store prices rising
by 3.3% on the year, the biggest increase since March
2012. The largest contribution to the rise in store
prices was a 16.4% increase in fuel prices. The latest
retail sales figures suggest that the pressure from
rising inflation and subdued wage growth are
starting to weigh on consumer spending.
Chart 4: Real Earnings Growth
4
Billions £
…increasing the squeeze on earnings...
In the three months to February 2017, the number of
people in employment rose by 39,000. UK
unemployment declined by 45,000 over the same
period and the UK’s unemployment rate stood at
4.7%, down from 5.1% for a year earlier. Annual
earnings growth, excluding bonuses, slowed from
2.4% to 2.2%. With consumer price inflation currently
holding steady at 2.3%, prices are now growing at a
faster rate than pay growth for the first time since
2014 (see Chart 4). If this trend continues it will
increase the squeeze on consumer spending, a key
driver of UK growth.
2
2017 Q1
2016 Q3
2016 Q1
2015 Q3
2015 Q1
2014 Q3
2014 Q1
2013 Q3
2013 Q1
2012 Q3
2012 Q1
2011 Q3
2011 Q1
2010 Q3
2010 Q1
2009 Q3
2009 Q1
2008 Q3
2008 Q1
-2
2007 Q3
0
2007 Q1
Annualised Growth %
4
-4
-6
-8
Source: BEA
-10
Chart 8: Real China GDP growth
16
14
12
Annual growth %
10
8
6
2017 Q1
2016 Q3
2016 Q1
2015 Q3
2015 Q1
2014 Q3
2014 Q1
2013 Q3
2013 Q1
2012 Q3
2012 Q1
2011 Q3
2011 Q1
2010 Q3
2010 Q1
2009 Q3
2009 Q1
2008 Q3
2008 Q1
2007 Q3
2007 Q1
4
Source: National Bureau of Statistics of China
Chart 9: Eurozone vs UK GDP growth
1
0.8
0.6
0.4
0.2
-0.6
2017Q1
2016Q4
2016Q3
2016Q2
2016Q1
UK
2015Q4
Eurozone
2015Q3
2015Q2
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2015Q1
-0.4
2013Q3
-0.2
2013Q2
0
2013Q1
…as Chinese growth picks up in Q1...
China - the world’s second-largest economy - grew by
1.3% in Q1 2017, over four times the growth of 0.3%
recorded in the UK over the same period. In annual
terms, the Chinese economy grew by 6.9% in Q1, the
fastest rate of growth since Q3 2015 and above the
Chinese government’s GDP growth target of 6.5% (see
Chart 8). However, while China’s economy has
enjoyed a reasonable start to the year, the near-term
outlook looks a little more uncertain with concerns
over debt levels and the financial sector likely to weigh
on their near-term growth prospects.
.
...and the Eurozone sees solid Q1 growth.
The first estimate of Eurozone GDP had growth at 0.5%
for Q1 2017, unchanged from Q4, but stronger than
the UK GDP growth recorded over the same period
(see Chart 9). In annual terms, the Eurozone economy
grew by 1.7% in Q1, down slightly from the growth of
1.8% recorded in Q4. However, France, the Eurozone’s
second largest economy, grew by 0.3% in Q1 2017,
down from growth of 0.5% recorded in Q4. The
outlook for the Eurozone has improved notably over
the past year, boosted by less austerity and the
European Central Bank’s (ECB) stimulus programme.
Chart 7: US Real GDP Growth
6
Quarterly Change %
...US growth weakens to three-year low...
The first estimate of US GDP revealed that the US
economy, the world’s largest, grew at an annualised
rate of 0.7% in Q1 2017 (see Chart 7), the slowest rate
of growth since Q1 2014 and just a third of the growth
of 2.1% recorded in the previous quarter. The
slowdown was largely driven by consumer spending,
which accounts for two-thirds of US economic output,
growing by just 0.3% in Q1, after a 3.5% increase in
Q4. Despite the weaker GDP figures in Q1, the outlook
for the US economy remains relatively strong and the
IMF currently expect that the US will be the fastest
growing economy in the G7 this year.
Sources: Eurostat, ONS
Bottom line: The latest data releases suggest that the UK economy is entering a more challenging period with rising
inflation a key risk for both consumers and businesses. While it is important to get a good Brexit deal, more must be
done to address the longstanding domestic issues, including the escalating burden of upfront business costs.
For more information please contact: Suren Thiru, Head of Economics and Business Finance. Email: [email protected]. Tel: 020 7654 5801
05/05/2017
BCC Monthly Economic Review
PAGE 3 OF 4
Economic summary chart
Deteriorating
Sector
Household
Indictors (sources)
Apr-16
Retail Sales (ONS)
Consumer Confidence (GfK NOP)
House Prices (Halifax)
New car sales (SMMT)**
Mortgage approvals (Bank of England)
Business
Business confidence (BCC)***
Business lending (Bank of England)
Service sector output (ONS)
Production output (ONS)
Investment intentions (BCC)**
c
Labour market Employment (ONS)
Unemployment (ONS)
Earnings (ONS)
Economic Inactivity (ONS)
Government
Public sector net borrowing (ONS)**
Public sector net debt % of GDP (ONS)**
Tax receipts (HMRC)**
Current Budget Deficit (ONS)**
External
UK trade balance (ONS)
Export Sales (BCC)***
Export orders (BCC)***
Financial
Exchange rate (Bank of England)
Equity Prices (Bloomberg)
10 year Government bonds (Bloomberg)
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
No change
Jan-17
Feb-17
Improving
Mar-17
Apr-17
*Colours indicate an improvement or deterioration of each indicator and refer to monthly changes unless stated. For example, an improvement in employment refers to an increase, while an improvement in
unemployment refers to a fall. Also a depreciation in the exchange rate refers to an improvement and an appreciation in the exchange rate refers to a deterioration. Dates refer to the release dates for each indicator.
**Annual changes. ***Quarterly changes. ****Latest figures are estimates.
05/05/2017
BCC Monthly Economic Review
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