Economic data was largely subdued this week, with UK retail sales hitting an all-time low and economists pointing to “broad-based weakness” in the UK economy - despite GDP data showing growth of 0.3% in the three months to May.
The May expansion, reported by the Office for National Statistics, was largely due to car production rebounding after a slump around the original Brexit deadline in March. However, the 0.3% recovery in May’s GDP data, up from the 0.4% drop in April, still left the average level of output in the second quarter lower than the first quarter’s, leading some economists to raise the prospect of a recession later this year - second quarter growth is expected to be negative this year and opinions are divided about whether the third quarter will see a further deterioration or a recovery. Paul Dales, chief UK economist at Capital Economics, said: “There’s clearly a risk of recession, but we’re not expecting one…just as GDP data for the first quarter suggested the economy was stronger than it really was, the data for the second quarter will suggest it's weaker than it really is. The truth is somewhere in between: GDP will probably rise in the third quarter.”
There was a downward revision on future economic growth from the EU as reduced its 2020 forecast for eurozone growth to 1.4% from 1.5%, and warnings emerged from the US Federal Reserve about the headwinds facing global growth. Fed Chair Jerome Powell’s suggestion that inflation in the US may stay lower for longer boosted the case for significant rate cuts which sent US shares soaring to new highs.
UK retail sales expanded at their slowest pace on record in the year to June, according to data released by the British Retail Consortium (BRC) this week. Sales grew just 0.6%, the lowest figure since BRC records began in 1995. Shops also saw a big fall in sales for the month of June – down 1.3% compared to a year earlier, with Brexit worries and political turmoil blamed for undermining confidence. It was also partly because spending a year earlier was higher than usual thanks to the hot summer, World Cup and royal wedding. BRC chief executive Helen Dickinson said: "Overall, the picture is bleak: rising real wages have failed to translate into higher spending as ongoing Brexit uncertainty led consumers to put off non-essential purchases. The continued risk of a no-deal Brexit is harming consumer confidence and forcing retailers to spend hundreds of millions of pounds putting in place mitigations."
One bright spot was a suggestion that the UK housing market may be turning a corner. The June survey by the Royal Institution of Chartered Surveyors (RICS) showed a rise in buyer interest for the first time in two and a half years, while the number of people putting their property on the market also increased for the first time in a year. However, the RICS’s chief economist Simon Rubinsohn said that while the survey suggested the market was “settling down”, many of the issues holding back growth remained unresolved. “I don't get the impression from the insight provided by contributors that this is fuelling hope of a significantly more active market going forward’ he said.
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