Economists do not expect interest rate rise until 2019

A survey of economists has revealed that UK interest rates are not expected to rise until 2019, despite inflation being above the Bank of England’s target.

A BBC survey found that the majority of economists believed the Bank of England Monetary Policy Committee (MPC) would not raise interest rates while Brexit negotiations are ongoing. Inflation is currently at 2.6%, above the official target rate of 2%.

The base interest rate has been at the record low of 0.25% since August 2016. Prior to that it stood at 0.5% since March 2009.

External MPC member Michael Saunders said in August that he thought interest rates should be raised soon to offset inflation. Saunders told a Cardiff conference: “We do not need to be putting the brakes on so much that the economy weakens sharply, but our foot no longer needs to be quite so firmly on the accelerator in my view.”

However, in the August meeting of the MPC, only Saunders and fellow member Ian McCafferty voted for an interest rate rise. The remaining six members voted to retain the current interest rate.

Saunders said that an increasingly constrained labour market, partly due to fewer EU migrant workers coming to the UK, pointed to a need for higher interest rates. In Q2 2017 the proportion of people aged 16-64 participating in the labour market reached a record high.

Survey shows drop in UK business confidence

Business confidence in the UK has fallen as the country faces an uncertain economic outlook and a slowdown in demand.

A new survey by Lloyds Bank shows that confidence among small and medium sized businesses is at a four-year low. The Business in Britain report, published by the bank on Monday, questioned over 1,500 UK companies to understand the overall balance of opinion on a range of performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.

The reportís confidence index – an average of respondentsí expected sales, orders and profits over the next six months – declined to 12%, down from 38% in January 2016.

Confidence fell in every sector, but the decrease was biggest in services including retail and wholesale, hospitality and leisure, and business and other services.

According to Lloyds Bank, the most commonly identified threat cited by companies for the next six months was economic uncertainty (27%), followed by weaker UK demand at 18%.

Tim Hinton, managing director for Mid Markets and SME Banking at Lloyds Banking Group, said: ‘Business confidence has taken a hit since our last report in January, but this should be viewed in the context of the recent economic and political shocks.

‘The EU referendum vote has introduced a level of uncertainty for companies as the UK decides on the best model for its future relationship with the EU, and this is likely to continue for the foreseeable future. Whilst sentiment has fallen to a four-year low, it remains well above the lows reached during the global financial crisis of 2008/9.’

A closer look at the survey results shows that the net balance of exporters anticipating an increase in total exports across the globe fell by 15 percentage points to 20%. There was also a 14-point drop to -1% in the net balance of companies expecting an increase in headcount over the next six months, and the net balance planning to raise their capital expenditure also declined, falling from 14% to zero.

Lloyds reported an increase in spare capacity among survey respondents: the percentage of businesses indicating that they are operating at full capacity fell back slightly to 49% from an all-time high of 52% in the last survey, and the proportion citing difficulties in recruiting skilled workers fell to a two-year low of 38%.

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, commented: ‘All of the key metrics in the Business in Britain survey, including the outlook for demand, employment and investment, have weakened since January’s report. This indicates that economic growth is likely to slow in the next six months, following a relatively robust performance in the first half of the year.

‘Even though inflation is expected to pick up as a result of the weaker pound, this may be offset by the survey findings of a fall in capacity pressures within firms and a fall in recruitment difficulties.’

Gender pay gap grows after childbirth

Women in the UK who return to work after having a baby lose out on wage progression, according to a new report by the Institute for Fiscal Studies (IFS).

The research shows that women earn 18% less than men on average, and the gender pay gap becomes steadily wider after women first become mothers. Over the subsequent 12 years, their hourly pay rate falls 33% behind men?s.

According to the IFS, this is partly because women who return to work often do so on part-time hours and miss out on opportunities for promotion. As a result, the hourly wages of men (and of women in full-time work) pull further and further ahead.

Additionally, women who take time out of paid work altogether and then return to the labour market miss out on wage growth.

There is some encouraging news in the report, with the current 18% gap in hourly wages down from 23% in 2003 and 28% in 1993. But the research also showed that there has been little improvement for graduates and women with A-levels.

?For the mid- and high-educated, the gender wage gap is essentially the same as it was 20 years ago,? the IFS said.

The Fawcett Society, which campaigns for women?s equality and rights, said in response to the report that more quality part-time jobs were needed to address the pay gap.

Its chief executive, Sam Smethers, commented:

?What this study very clearly shows is the motherhood wage penalty, which is exacerbated by a lack of quality part-time work. We are wasting women?s skills and experience because of the way we choose to structure our labour market.

?Part-time workers can be the most productive, yet reduced hours working becomes a career cul-de-sac for women from which they can?t recover. We desperately need to see more quality part-time jobs.?

TUC general secretary Frances O?Grady agreed, saying that the gender pay gap will take decades to close without more well-paid, part-time jobs and affordable childcare.

?We need to see a step change in government policy and employer attitudes if we are to fix this problem,? O?Grady added.

Scotland’s economy outperforming the rest of the UK

HM Treasury today released the fifth paper in its Scotland analysis series, revealing that as a result of being part of an integrated UK, Scotland is outperforming most other parts of the British Isles.

Scotland benefits by being incorporated in the economic integration with the rest of the UK by having free access to the larger UK market. This enables Scottish companies to trade more goods and services with the rest of the UK than with the rest of the world.

Integrated supply chains also result in Scotland exporting GDP36bn of goods and services to the other parts of the UK. In addition, a common regulatory framework and a highly flexible labour market allows Scottish businesses to recruit the best people from across the whole of the UK. Labour migration between Scotland and the rest of the UK is estimated to be as much as 75%, which allows the sharing of skills and knowledge.

The paper shows that the stability of public spending in Scotland is helped by the broader and more diverse tax base of the integrated UK and that Scotland is protected from economic shocks and the volatility of North Sea oil and gas prices.

Today, deeds have been unveiled by the Chancellor that will give the oil and gas industry long-term certainty on the tax relief they will receive from decommissioning.

The analysis also shows that since 1999, Scotland’s onshore economy has generated 8.3% of the UK’s tax receipts and Scotland has received an average of 9.4% of UK public spending.

Chancellor to the Exchequer, George Osborne, said: “Scotland benefits from being a strong part of the UK, and the UK also benefits from Scotland’s place within it. Today, I’m unveiling the final decommissioning deed. This is a concrete example of the tax certainty this government is providing. The industry estimates that this decommissioning certainty will drive at least GBP17 billion of increased investment, extending the life of the North Sea basin.”

US economy poised for growth, but austerity threatens

According to a report from Canada-based financial services firm Toronto Dominion’s (TSX: TD) (NYSE: TD) US-based TD Bank’s TD Economics affiliate, the main obstacle standing in the path of faster US economic growth is a strong headwind blowing in from fiscal restraint.

The report said that, without fiscal drag, the US economy would be headed for a growth trajectory in the 3-4% range in 2013.

It said that the worst of the consumer deleveraging cycle and its dampening effect on economic growth appear to be over. But just as the private sector is set to provide a welcomed tailwind to the economy, it will be met with worsening cross winds from public sector restraint.

TD Economics forecasts economic growth to average 1.9% in 2013 down from an estimated 2.2% in 2012. However, by the second half of next year, clearer fiscal policy should lead to resurgence in private demand, placing the economy on a stronger footing with 3.0% growth in 2014.

With a few weeks to go before deep spending cuts and tax hikes arrive and hamper economic growth, a deal to avoid them between the White House and Congress has yet to be reached.

TD Economics estimates that if all tax hikes and spending cuts are allowed to take place as scheduled, it would cut 3.0 %age points from real GDP in 2013.

The constraint on growth posed by fiscal policy comes amid signs that housing has entered a self-sustaining recovery. Home prices have risen consistently through 2012 while delinquencies and foreclosures have fallen.

TD said that the rise in home prices has been substantial prices are up 5.0% from year-ago levels and appears sustainable. The fall in construction activity over the last several years has cleared the supply overhang and allowed rising demand to pull up prices.

The housing market has also been the focus of the Federal Reserve, whose latest round of quantitative easing has focused on purchases of mortgage-backed securities.

UK employees see wage growth of 62% over 25 years

Full-time employees in the UK are earning 62% more than they were 25 years ago, the Office for National Statistics (ONS) said today.

As of April 2011 the average full-time wage had risen to around GBP12.62 per hour excluding overtime. This represents a cash increase of 226% compared with 1986, when the average wage was GBP3.87 per hour. After adjusting for price increases over the 25-year period, full-time employees were on average 62% better off in 2011 than in 1986.

Importantly, the increase in pay was not evenly spread and earnings grew most for those at the top end of the scale. The top 1% of earners enjoyed the biggest increase between 1986 and 2011, at 117%, and the top 10% saw an increase of 81%.

The bottom 10% saw wage growth of 47%, although the very lowest earners did better – especially after the introduction of the National Minimum Wage in 1998. Across the 25 years the bottom earners had a 70% increase in pay. Since 1998 those at the very bottom end of the earnings distribution have seen a real increase of 51%, compared with an increase of 30% for the top 1%, the ONS reported.

The UK’s national trade union centre, the TUC, noted that the minimum wage has provided an important pay boost to the very poorest workers, but that inequality has risen throughout the UK over the last quarter of a century.

TUC General Secretary Brendan Barber said that the cost of the economic crisis has been passed on to workers on average incomes, with those near the bottom suffering the greatest loss, and he called for the minimum wage to continue rising in order to help the very poorest workers. More employers should pay a living wage to help the low-paid, he added.

Looking specifically at the effects of the economic downturn of the last five years, the ONS report reveals that people at all income levels experienced drops in real earnings in the period 2007-2011, with wage growth failing to keep pace with price rises. This stands in contrast to the four-year period covering the recession of the early 1990s, in which real wage growth was positive across the scale.

A separate report released yesterday by Incomes Data Services, part of Thomson Reuters, showed that total earnings for FTSE-100 directors have increased by around 10% over the last year. Although salary growth was in line with inflation and bonuses were down on the previous year, there was a big rise in the value of vested long term incentive plan awards.

Simon Walker from the Institute of Directors commented that the level of FTSE directors’ pay in some cases remains excessive, and incentives are often not properly linked to the long-term fortunes of the company. He said that shareholders have a role to play in working with boards to make sure that directors are judged on a range of criteria that reward genuine long-term performance, not just on fluctuations in the stock market.

Dubai economy now on the up, say DED and HSBC Banking

Traditionally a treasure chest of good news for the financial and banking world, Dubai is boasting more positive data these days, according to reports by HSBC and Dubai Department of Economic Development (DED).

DED has showed that the recovery in the Gulf country is now well on its way – a stark contrast with the situation of troubled Eurozone countries.

The governmental institute recorded in the first quarter of the year an increase in trade licences by 27 per cent over the same period last year.

This has been interpreted as a sign of mounting business confidence, a trend which was also noted earlier this month by HSBC, which highlighted a 10 per cent increase on the number of visitors to Dubai over the previous year.

At the same time, reports by HSBC Holdings also showed that, in the month of April, non-oil private sector business reached a 10-month high thanks to new business orders and more staff being hired.

This was accompanied by increasing sales revenues and an encouraging atmosphere surrounding services and trading sectors.

On a more general level, Dubai’s GDP is now expected to grow by 4 to 5 per cent this year, a number that exceeds previous predictions of 2.5 per cent.

Most of the credit goes now to Dubai’s thriving trade sector which, combined with tourism and five more sectors represents 96 per cent of the country’s GDP, and is a symbol of the country’s expanding business opportunities.

Mohammed Shael Al Saadi, chief executive of business registration and licensing at DED, also welcomed the data, and said that it will drive “growing interest in engaging in diverse business activities in Dubai”.

Al Saadi words were followed by chief economist at Dubai’s Economic Council, Ali Tawfiq Al Sadeq, who added: “Growth this year will be supported by expansion in overall economic activities and strong performance of key factors. This was shown in the first quarter of 2012.”


UK manufacturing returns to growth in March but industrial output falls

UK manufacturing output rose again in March, showing an increase of 0.9% after a fall of 1.1% in February, according to the latest Index of Production released today by the Office for National Statistics (ONS).

Month-on-month growth was registered in eight manufacturing sub-sectors, including chemicals, transport equipment and electronics, while four sub-sectors, including wood and paper products manufacturing, recorded a decrease and one was flat.

Philip Shaw from specialist bank and asset manager Investec, quoted by the BBC, said it was encouraging to see that manufacturing in March almost recovered its February losses. He noted however that, looking at the first quarter as a whole, the sector remains flat.

The ONS’s wider measure of industrial production decreased by 0.3% in March, with reductions seen in oil and gas production and mining and quarrying.

Year-on-year comparisons reveal that manufacturing output was 0.9% lower in March 2012 than in March 2011. Seven manufacturing sub-sectors declined, including food, drink & tobacco and rubber & plastic products, while six sub-sectors increased, led by transport equipment manufacturing.

Similarly, industrial production fell by 2.6% in March 2012 compared with March 2011, the 13th consecutive decrease in this metric, with the last rise seen in February 2011.

UK retail sales hit by wettest April on record

Retail sales in the UK were were dampened by the wettest April on record, according to a report released today by the British Retail Consortium (BRC).

The latest BRC-KPMG Retail Sales Monitor reveals that like-for-like sales fell 3.3% compared with April 2011, when sales rose 5.2% on a year earlier.

Comparisons for this time of the year are always affected by the timing of Easter. The BRC noted that this April’s comparison is with a very strong April 2011, which included all four days of Easter compared with only two in April 2010. In 2012 Easter was in early April, which meant that some Easter shopping was shifted into March.

Last April was also boosted by the Royal Wedding and the associated extra public holiday for people to shop or celebrate. Retailers are hoping that a 2012 feel-good factor will soon emerge in connection with this summer’s events, which include the Queen’s Diamond Jubilee, the London Olympic Games and the Euro 2012 football championships.

April’s heavy downpours and cold weather meant that consumers had little interest in summer fashions and outdoor products. Food retailers fared better, although the average shopping basket reflected the weather conditions, with shoppers choosing hot drinks, porridge, joints of meat and soups.

Meanwhile online sales of non-food items (including mail-order and phone sales) showed the weakest growth since November 2011, rising by 9.0% year-on-year against a relatively strong April 2011.

KPMG’s head of retail, Helen Dickinson, said that retail sales are expected to improve in May, but the overall health of the retail sector remains on a downward trajectory as people’s desire to consume “ever increasing volumes of goods” diminishes and advances in technology change the way we shop.

Why Teambuilding Doesn’t Work In An Ecconomic Downturn

In tough economic times lower sales trigger the need for cost reductions and a slimmed down workforce – often leading to low morale and disenchanted staff that are over-worked and stressed. When we’re confronted with this, it commonly leads to a knee-jerk reaction to “do something” to fix it.

Typically that might take the form of some big rousing “team building” event with an upbeat tone.

But according to profitable growth expert Hilary Briggs of R2P Ltd when these kinds of activities are put in place under these circumstances, the impact is not entirely positive.

Events like this tend to turn people off even more; they recognise cash is tight, and see some lavish event as hypocritical, particularly if the key issue of fewer people doing a similar amount of work is not tackled.

Team building events can also lead to resentment because they require taking time out and this exacerbates the overwork/stress situation.

So if big team building events are not the answer – what is?

A better tactic might be to start with a more practical approach to achieve improvements in the short term, rather than a large flashy team building exercise. This smaller more practical strategy can lay the foundations for more in-depth team building in the future – when the time is right. Practical activities include;

1)      Acknowledge the situation and the overwork and stress etc and take responsibility for it. If showing empathy comes with difficulty – tackle your Emotional Intelligence first!

2)      Organise focused sessions on specific problems related to work or to opportunities to improve productivity.

3)      Ensure clear actions come out of the session and make team members accountable for following up on the decisions taken.

4)      Set a clear timescale. Prioritise actions that can be done within the timeframe.

5)      Create a powerful vision of what things could be like. Communicate this vision and help the rest of the team see it, and feel it too.

6)      Review how it’s going and adjust. It’s important to get results and then build on these.

This approach may be less flashy than some high-prestige, feel-good event, but taking these practical steps will not only help your people to feel less stressed and more engaged again, they’ll actually get you bottom line results as well. It’s not that team building events should be avoided – just that the timing needs to be right.