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UK Economy Bounces Back From Strikes Stronger Than Expected



(Bloomberg) — Prime Minister Rishi Sunak said the UK economy is proving stronger than expected after growth in January beat forecasts.

Gross domestic product expanded 0.3% in January, Office for National Statistics data showed on Friday. That marked a sharp rebound from the 0.5% fall logged in December when strikes by health care workers and postal and rail staff hammered activity.

Growth beat City forecasts of 0.1%, prompting KPMG to upgrade its outlook for the year ahead and adding to a series of positive recent surprises on business activity, house prices, retail sales and consumer confidence. They have have raised hopes the UK might avoid the shallow recession the Bank of England is forecasting.

“If you look at some of the things that have been coming out in the last month, they’re all showing encouraging signs that things are better than people had feared, that sentiment is improving, confidence is returning,” Sunak told reporters traveling with him to France on Friday. “The underlying fundamentals of the economy are strong.”


Better-than-expected growth comes less than a week before Chancellor of the Exchequer Jeremy Hunt’s annual budget statement due March 15, but is too late to affect his forecasts. He faces difficult choices between driving growth and keeping debt under control.

And while stronger growth raises hopes the UK can dodge a downturn altogether, it also piles pressure on the BOE to keep raising interest rates in its fight to bring down double-digit inflation.

Shorter Downturn

The underlying picture remains weak, as GDP is still 0.2% smaller than it was before the pandemic.

“We expect the current downturn to be shallower and shorter than previously thought, with stronger business sentiment and a steady fall in inflation expected to support the recovery in the second half of the year,” said KPMG UK’s Chief Economist Yael Selfin.

However she added that a recession was “still on the cards”, as falling wholesale natural gas prices and the easing of supply chain disruptions might not be enough to counter weak spending and stave off a slump.

Money markets expect the Monetary Policy Committee to raise interest rates by a further 75 basis points to 4.75% by year-end. Investors pared back expectations for the peak rate overnight on concern about how pockets of trouble in the US banking sector could point to broader dangers from higher rates.

What Bloomberg Economics Says …

“The surprisingly large expansion in GDP in January gives the UK economy a good chance of avoiding a technical recession in the first half of the year. That will come as an upside surprise to the Bank of England — emboldening those policymakers calling for further tightening. Our base case remains for a final 25-basis-point rate increase later this month. But the economy’s resilience raises the risk that rates peak a little higher than we expect.”

—Ana Andrade, Bloomberg Economics. Click for the REACT.

Prospects have brightened in the last few weeks, prompting the British Chambers of Commerce to predict the economy could avoid a recession this year. Recent figures on retail sales, the housing market and closely-watched surveys of purchasing managers have all showed surprising strength.

Growth in January was driven by the services sector, which expanded 0.5%. Consumer-facing services rebounded from the strike affected December. Construction shrank 1.7% and manufacturing fell 0.4% in the month.

The largest contributor to the services sector was from education, as school attendance levels rebounded to normal levels following a “significant” drop in December.

Widespread strikes in December curtailed retail sales during the Christmas period. The economy suffered further disruption in January as rail staff, teachers and thousands of other workers walked off the job, demanding their pay keep pace with inflation.

But so far the evidence is retailers and other service-sector companies had a strong start to the year.

And after strikes caused activity in the postal and courier sector to slump by 10.5% in December, this rebounded by 6.4% in January, helping the transport and storage sector grow by 1.6% on the month.

Arts, entertainment and recreation also grew by 3.4%. That was driven by sports and recreation, which grew by 8.9% as Premier League football returned to its full schedule following postponements in December for the FIFA World Cup.

“This modest rebound suggests that the economy is still on a downbeat path as eye-watering inflation bites into household incomes and curbs business activity,” said Suren Thiru, economics director at Institute of Chartered Accountants in England and Wales. “We’re likely to continue flirting with recession throughout much of 2023.”

But in a sign of gloom in the housing market, real estate was the only negative contributor to services in January, falling by 0.1%. Mortgage lenders reported a dearth of buying activity in January amid rising mortgage rates and cost-of-living pressures.

–With assistance from Andrew Atkinson and David Goodman.


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Economy grew 0.5 per cent in January, Statistics Canada reports –



OTTAWA — Economic growth resumed in January and came in better than first expected following a small contraction in December, Statistics Canada said Friday.

Real gross domestic product rose 0.5 per cent to start the year, the agency said, beating its initial estimate for a gain of 0.3 per cent for the month and reversing a contraction of 0.1 per cent in the final month of 2022. 

Statistics Canada also said its initial estimate for February indicates growth continued with a gain of 0.3 per cent, though it cautioned the figure will be updated.


“There were many indications that the economy got off to a solid start in 2023, but today’s double-barrelled blast of strength is well above even the most optimistic views,” BMO chief economist Douglas Porter wrote in a report.

“Even if growth stalls in March, it now looks like Q1 will post growth of 2.5 per cent, up from a flat read in Q4. While we continue to look for a notable cooldown in the next two quarters, we are bumping up our GDP growth estimate for all of 2023 by three ticks to 1.0 per cent.”

The growth in January came as goods-producing industries gained 0.4 per cent for the month, while services-producing industries rose 0.6 per cent.

Statistics Canada said many of the main drivers for growth in January also contributed the most to the decline in December.

The wholesale trade, transportation and warehousing, and mining, quarrying and oil and gas extraction sectors all rebounded after falling in the previous month.

Wholesale trade gained 1.8 per cent in January, helped by wholesalers of machinery, equipment and supplies, while the mining, quarrying and oil and gas extraction sector grew 1.1 per cent after falling 3.3 per cent in December.

The transportation and warehousing sector added 1.9 per cent in January, more than offsetting a drop of 1.1 per cent in December that was due in part to bad weather.

This report by The Canadian Press was first published March 31, 2023.

The Canadian Press

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Canada's economy shows surprising resilience despite rate hikes – BNN Bloomberg



Canada’s economy kept growing at the start of this year, defying expectations of a stall and eventual technical recession in the face of the highest interest rates in 15 years.

Preliminary data suggest gross domestic product expanded 0.3 per cent in February, Statistics Canada reported Friday in Ottawa, led higher by oil and gas, manufacturing, and finance and insurance sectors. That followed a 0.5 per cent expansion in the previous month, stronger than expectations for 0.4 per cent growth in a Bloomberg survey.

The Canadian economy is now on track to expand at an annualized rate of 2.8 per cent in the first quarter, assuming growth in March comes in flat. That’s much more robust than the 0.5 per cent annualized pace forecast by the Bank of Canada in January, when it signaled a conditional rate pause. 


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“Today’s double-barreled blast of strength is well above even the most optimistic views,” Bank of Montreal Chief Economist Doug Porter said in a report to investors. “Suffice it to say that if the strength seen in the opening months of the year persists, the BoC is going to find itself in a tough spot.”

Canada’s currency reclaimed nearly all of its losses after the release and bonds rallied. The yield on benchmark government two-year debt fell more than 3 basis points to 3.777 per cent at 9:50 a.m. in Ottawa. 

The data suggest while some rate-sensitive sectors like housing have already cooled, overall economic growth is still holding up better than expected. It’s also at odds with a flurry of early estimates released last week that suggested a pullback in economic activity, with retail, wholesale and manufacturing sales all falling in February.

Friday’s numbers will test Governor Tiff Macklem and his officials as they look for evidence that monetary policy is sufficiently restrictive to bring inflation back to the central bank’s 2 per cent target. An accumulation of stronger-than-expected data may prompt them to stay on the sidelines for longer or even hike again.

Traders in overnight swaps markets, however, are betting the Bank of Canada’s next move will be a cut, given turmoil in global financial markets after the failure of regional U.S. lenders and a government brokered takeover of a European banking giant.

Economists in a monthly Bloomberg survey see 1 per cent annualized growth in the first three months of this year. But that’s expected to be followed by two straight quarterly contractions.

During deliberations for the central bank’s March 8 decision to hold rates steady for the first time in nine meetings, policymakers said they saw “clear signals” hikes so far were curbing demand. But there are few signs in recent data that the economy is gearing down.

Both goods-producing and services-producing industries were up in January, with nearly all sectors posting increases, except agriculture, utilities and management of companies.

Rebounds in several industries drove the January gain. Many of the key growth drivers were the largest contributors to December’s 0.1 per cent decline, including wholesale, transportation, and oil and gas industries. Accommodation and food services activity was also a key contributor.

“The Bank of Canada is likely at a crucial juncture and facing a significant dilemma,” Charles St-Arnaud, chief economist at Credit Union Central Alberta Ltd., said in a report to investors. “The central bank may have to choose between fighting inflation and hiking interest rates again or focusing on financial stability and keeping rates on hold.”

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UK economy avoids recession but businesses still wary



LONDON, March 31 (Reuters) – Britain’s economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households’ finances from state energy bill subsidies but falling investment by businesses.

With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth.

GDP in the third quarter was also revised to show a 0.1% contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.

Two consecutive quarters of contraction would have represented a recession.


Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.



“The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy’s performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard,” Investec economist Philip Shaw said.

The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10%.

Since then, a string of economic data has come in stronger than expected by analysts.

Ruth Gregory at Capital Economics said Friday’s figures showed high inflation had taken a slightly smaller toll than previously thought.

“But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” she said.

House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.

The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.

Britain’s dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.

Manufacturing grew by 0.5%, driven by the often erratic pharmaceutical sector, and construction grew by 1.3%.

Individuals’ savings were boosted by the government’s energy bill support scheme and households’ disposable income increased by 1.3% after four consecutive quarters of negative growth.

The BoE expects Britain’s economy to have contracted by 0.1% in the first three months of 2023 but it forecasts slight growth in the second quarter.

The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.

But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.


The data suggested businesses remained cautious. Business investment fell 0.2% in quarterly terms, a sharp downgrade from a first estimate of a 4.8% rise after changes to the way the ONS calculates seasonal adjustments.

Earlier on Friday, a survey painted a more upbeat picture for businesses.

Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.

The ONS said Britain posted a shortfall in its current account in the fourth quarter of 2.5 billion pounds ($3.1 billion), or 0.4% of GDP.

Excluding volatile swings in precious metals, the shortfall fell to 3.3% of GDP from 4.2% in the third quarter.

The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.

Britain’s financial account surplus – which shows how the current account deficit was funded – comprised large net inflows of short-term, “hot” money. Foreign direct investment was negative in net terms for a sixth quarter running.

($1 = 0.8073 pounds)

Additional reporting by William James, graphic by Vineet Sachdev; Editing by Robert Birsel and Catherine Evans

Our Standards: The Thomson Reuters Trust Principles.



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