UK’s economy unexpectedly shrinks amid rate-cut debate

Bloomberg

The UK economy unexpectedly shrank ahead of the general election, casting doubt over whether there was any growth at all in the fourth quarter.
The figures will add to concerns at the Bank of England (BOE), where officials are debating whether further stimulus is needed if economic weakness persists. Three policy makers, including Governor Mark Carney, have flagged the possibility of an interest-rate cut in the past week, sending the pound lower and sparking an increase in market bets on a move as soon as this month.
Gross domestic product fell 0.3% in November, missing forecasts for unchanged output on the month. It means growth of 0.1% to 0.2% was needed in December to prevent the economy contracting in the fourth quarter.
The figures reflect caution in the run-up to the December election, with the dominant services industry contracting 0.3% — the biggest decline since early 2018. Overall economic growth of 0.6% from a year earlier was the weakest since mid-2012.
The pound fell for a fifth day against the dollar, dropping as much as 0.8% to $1.2966. Gilts rose, led by shorter tenors, and five-year yields fell to the lowest since early December.
Carney said last week that the BOE has plenty of policy room to act if necessary, and officials Silvana Tenreyro and Gertjan Vlieghe warned they could join two other colleagues calling for cheaper borrowing costs. Markets have put about a 50% chance on a rate cut this month.
BOE officials will have plenty of economic numbers to digest before announcing their next interest-rate decision on January 30. This week sees the release of inflation data and retail sales, with unemployment figures due next week. There’s also Purchasing Managers Index for January, which will provide a snaphot of the economy at the start of 2020.
Surveys taken after December’s election suggest prime minister Boris Johnson’s emphatic victory delivered a sharp boost to confidence. The question is whether that momentum can be maintained.
Britain is due to leave the European Union at the end of the month, and many doubt Johnson can deliver on his pledge to strike a trade deal with the bloc by the end of the year. If he fails, Britain will once again be facing a disruptive cliff-edge Brexit.
Monday’s data on the economy also showed an upward revision to GDP between September and November, though it was still the weakest performance since July.
Manufacturing output fell 1.7% in November, partly reflecting car factories shutting down to avoid supply disruptions around the now-postponed October 31 Brexit deadline. Auto output alone fell more than 6%. Construction output rose 1.9%, rebounding from a weak October.

UK job vacancies drop most in a decade: BDO
Bloomberg

UK job postings fell by the most in a decade last year as Brexit uncertainty whipsawed business planning, according to a report from BDO.
Vacancies fell by 59,000 in 2019, the most since the 2009 financial crisis, though overall employment levels remained “strong,” the accounting and business advisory firm said in a report published on Monday.
Its business optimism index, which weighs economic data against UK business surveys, was flat between November and December. British employers are looking for more clarity on how the newly elected government plans to leave the European Union.
Prime minister Boris Johnson’s Conservatives won the biggest majority for the party in more than three decades in a decisive general election victory last month. That gave Johnson a mandate to pull the UK out of the European Union after more than three years of gridlock as Parliament failed to commit to the withdrawal agreement.
The “figures show the tricky economic landscape that the new Government must contend with,” said Peter Hemington, a partner at BDO, in the report. “Their key challenge must be to find a way to kickstart growth in 2020. Post-election changes in optimism take a while to feed through, even where the result is decisive as this.”