Think tank gives bleak outlook for UK economy

The UK is set to see the longest fall in living standards in 60 years, according to the Resolution Foundation.

The think tank has said that disposable incomes in the UK are set to fall for 19 successive quarters, longer than the squeeze seen in the aftermath of the 2008 financial crash, as reported by BBC News.

The Resolution Foundation, a not-for-profit research and policy organisation focusing on people on low incomes, said the UK economy is set to be £42bn smaller in 2022 than previously forecast.

The country’s growth predictions were cut on Wednesday by the Office for Budget Responsibility, which reduced projected growth from 2% to 1.5%. Growth for the next five years is expected to be under 2%.

The Resolution Foundation said the abolition of stamp duty for first-time buyers of property under £300,000 is is unlikely to be effective in addressing the housing crisis. The £3bn cost of the measure will deliver savings on a small number of purchases, working out at a cost of £160,000 per extra homeowner. The same money could have built 140,000 new homes.

The think tank was critical of the Chancellor’s budget package, saying it would mean losses of £715 per year for the poorest third of households while the richest third would gain £185.

The slow pace of productivity growth is a key area of concern for economists. The average has been revised down by around 0.7% per year until 2023.

UK budget sees SDLT cut for first-time buyers

Stamp Duty Land Tax (SDLT) is to be abolished for most first-time buyers in England and Wales under Chancellor Philip Hammond’s budget, as reported by BBC News.

Purchasers buying their first home will not be liable for SDLT on the first £300,000 of a property’s value, saving £5,000. The Chancellor said the move was intended to make it easier for people to get onto the housing ladder.

SDLT is currently payable on properties sold for more than £125,000 in England, Wales and Northern Ireland. In Scotland, the duty is payable on properties over £145,000. The Chancellor said the cut would benefit 95% of first-time buyers.

The Chancellor has also promised that the government will deliver 300,000 new homes annually to reduce the housing shortage. The budget contains £44bn in capital investment and other measures to stimulate building programmes.

Growth forecasts for the UK have been revised down amid uncertainty about the Brexit negotiations. The Office for Budget Responsibility’s prediction is now 1.5% growth in 2017; in March 2017 the projected figure was 2%.

Other key announcements from Hammond’s budget speech included a £1.5bn fund to “address concerns” about the introduction of the Universal Credit benefit scheme, £400m to build a new infrastructure for electric cars and £300m for connections between the HS2 rail scheme and other railway networks in the North of England.

Parliamentary committees criticise gig economy

Two parliamentary committees have indicated that rules governing the so-called ‘gig economy’ should be changed to protect workers from exploitation, according to BBC News.

The Work and Pensions Committee and the Business Select Committee have jointly drawn up a draft bill to ensure that individuals are judged to be a ‘worker by default’, with associated entitlements to sick pay, holiday and other rights.

The committees found that workers such as minicab drivers and delivery riders were facing an ‘unacceptable burden’ of trying to prove they are workers rather than self-employed people. Politicians proposed that companies should be fined if they falsely categorise workers.

Frank Field, chairman of the Work and Pensions Committee said the draft bill would “end the mass exploitation of ordinary, hard-working people in the gig economy. […] It is time to close the loopholes that allow irresponsible companies to underpay workers, avoid taxes and free ride on our welfare system.”

Matthew Taylor, chief executive of the Royal Society of the Arts has been commissioned by the government to draw up a report on employment practices. The report, due in July 2018, is likely to call for legal reform to reclassify gig workers as dependent contractors, maintaining flexibility while also giving access to statutory benefits.

A series of recent legal cases have seen workers challenge gig economy brands such as Uber and Deliveroo about their employment status.

A UK government spokeswoman said the government recognises that “the labour market is not working for everyone.”

Nisa shareholders narrowly agree Co-op takeover

Shareholder approval has been secured for the takeover of Nisa convenience stores by the Co-Operative Group in a £137m deal, according to BBC News.

An emergency meeting of shareholders secured 75.79% backing for the takeover, a very narrow margin in favour of the proposal as approval of 75% was needed to go ahead.

Nisa operates 3,000 stores on a wholesale model and is owned by members. The Nisa board had said that the deal was in the “best interests” of members. The final agreement is still subject to approval by the Competition and Markets Authority.

Nisa chairman Peter Hartley said: “The convenience store environment is changing rapidly, and is unrecognisable from that which existed when Nisa was founded more than 40 years ago. Co-op will add buying power and product range to our offering, while respecting our culture of independence.”

The terms of the deal allow Nisa members to opt to buy goods from an alternative supplier if they do not wish to stock Co-op lines. Shareholders will each receive £20,000 plus deferred payments depending on the size of their shareholding.

The retail industry is seeing consolidation in the face of sharp competition from relative newcomers such as Aldi and Lidl, online giants such as Amazon moving into the space, and shifts in consumer habits.

Nisa has reported revenues of £1.25bn in the year to 2 April 2017, and pre-tax profits of £2.8m.

World Bank President issues warning on robot workers

President of the World Bank Jim Yong Kim has said the world is on a “crash course” as millions of jobs become automated, according to BBC News.

The chief said that policymakers need to address the issue by investing more in education and health. The comments follow broader concerns about political matters that could impact economic growth.

The World Bank is planning to publish a ranked list of countries according to investment in ‘human capital’, for example education of citizens. The World Bank has traditionally focused on infrastructure but is shifting its focus.

Dr Kim said when robots displace millions of low-skilled workers, “the one thing you know for sure that you’ll need in whatever the economy looks like in the future is people who can learn.

“We want to create a sense of urgency to invest in people that we think is necessary given the way […] the global economy is changing.”

Global economic growth is set to reach 3.5% this year and 3.6% in 2018, but bankers from the IMF, World Bank and other international organisations have said that political movements threaten growth. These threats include trade barriers, isolation, and military aggression.

IMF Christine Lagarde has warned that the current global recovery should not be allowed to “go to waste.” Ms Lagarde said: “We know what can happen if we let the moment pass. Growth will be too weak, and jobs too few. Safety nets will be unable to handle aging populations. Our financial system will be unprepared for future shocks.

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.