UK economic growth in Q4 higher than previously thought but business investment falls

The UK economy grew by more by more than previously reported in the final quarter of 2016, but figures also reveal a decline in business investment.

New estimates released on Wednesday by the Office for National Statistics (ONS) show that the UK’s gross domestic product (GDP) grew by 0.7% in the October to December quarter, revised up from the preliminary estimate of 0.6%.

The upward revision was mainly due to a stronger performance by the manufacturing industry.

However, for the whole of 2016 economic growth was weaker than previously thought. The UK economy is now thought to have grown by 1.8% — revised down from the 2% forecast last month. This means that the UK can no longer be considered the fastest-growing major advanced economy last year, as Germany’s economy grew by 1.9% in 2016.

Moreover, separate figures released on Wednesday reveal a slowdown in UK business investment in the fourth quarter, down 1.0% compared with the three months to the end of September.

Across the whole of 2016, investment declined by £2.7bn or 1.5% compared with the previous year — the first annual decrease in business investment since 2009. The ONS attributed the drop to weakness in investment in buildings and structures as well as information and communication technology (ICT) equipment and other machinery and equipment.

Commenting on the figures, Lee Hopley, chief economist at manufacturers’ organisation EEF, said:

“The UK economy is rarely without its weak points and at the end of 2016 it was business investment. Capital expenditure by businesses saw a contraction in the final months of last year contributing the first year-on-year contraction in business investment since 2009. It’s too soon to declare this an worrying omen for 2017, especially as more recent survey indicators have been signalling a more positive trend.”

Nevertheless, businesses are expected to rein in their investment plans as the UK negotiates its departure from the European Union, Reuters reported.

TUC general secretary Frances O’Grady said:

“It’s very worrying to see that business investment is already falling with the challenges of Brexit ahead. If this trend continues, working people will pay the price through weaker wages and fewer jobs.

“Despite a modest boost to public investment last year, UK investment still lags behind the world’s leading industrial nations. With private sector investment in retreat, the Chancellor must focus on closing the gap with our competitors in next month’s budget. This would help protect jobs and wages, and it would give a much needed boost to business confidence.”

UK retail sales fall in January

Rising prices for fuel and food are thought to be behind a fall in UK retail sales in January, the Office for National Statistics (ONS) said on Friday.

Official figures show that the quantity bought in the retail industry in January 2017 declined by an estimated 0.3% compared with the prior month. Both online and in-store sales were lower in January than in December.

Year-on-year, the quantity bought is estimated to have increased by 1.5% — the lowest growth since November 2013.

Meanwhile, the underlying pattern as suggested by the three month on three month movement decreased by 0.4%.

“In the three months to January, retail sales saw the first signs of a fall in the underlying trend since December 2013,” said ONS senior statistician Kate Davies. “We have seen falls in month-on-month seasonally adjusted retail sales, both in conventional stores and online, and the evidence suggests that increased prices in fuel and food are significant factors in this slowdown.”

The drop in retail sales during January followed the sharp fall recorded in December.

“The failure of retail sales in January to rise at all after December’s 2.1% month-to-month drop demonstrates that consumers’ spending has shifted down several gears in response to slowing employment growth and rising inflation,” said Samuel Tombs of Pantheon Macroeconomics, quoted by the Financial Times.

Ruth Gregory from Capital Economics, quoted by the BBC, commented: “January’s surprise fall in the official measure of retail sales volumes has brought the recent run of resilient economic news to an abrupt end. And the rest of the year is shaping up to be tough on the high street, given the expected squeeze on consumers’ real pay growth.”

Earlier this week, figures from the ONS showed that inflation in January climbed to its highest level in two and a half years.

The Consumer Prices Index (CPI) rose by 1.8% in the year to January 2017, compared with a 1.6% rise in the year to December 2016.

More than 350 UK firms ‘named and shamed’ over low pay

Hundreds of companies in the UK have been paying staff below the national minimum wage or the national living wage, the UK Government revealed on Wednesday.

Debenhams, Subway, Lloyds Pharmacy and the Co-op are among 359 businesses “named and shamed” by the Department for Business, Energy & Industrial Strategy for underpaying 15,513 workers a total of £994,685.

HMRC recovered arrears for the workers and fined the employers around £800,000.

Business minister Margot James said:

“Every worker in the UK is entitled to at least the national minimum or living wage and this government will ensure they get it.

“That is why we have named and shamed more than 350 employers who failed to pay the legal minimum, sending the clear message to employers that minimum wage abuses will not go unpunished.”

Employers in the hairdressing, hospitality and retail sectors were said to be the most prolific offenders.

TUC general secretary Frances O’Grady described the list of businesses as “a wake-up call for employers who value their reputation” and called for prosecutions and higher fines for the most serious offenders, especially those that deliberately flout the law.

“Minimum wage dodgers must have nowhere to hide,” she added. “We need to see strong unions in every workplace to stop these abuses from happening.”

The Office for National Statistics has calculated that 362,000 jobs did not pay the national minimum wage or national living wage in April 2016, representing around 1.3% of all UK employee jobs.

Last month, the Government released a list of some of the strangest excuses given by employers for not paying the national minimum wage. They included: “She doesn’t deserve the National Minimum Wage because she only makes the teas and sweeps the floors,” and “My workers are often just on standby when there are no customers in the shop; I only pay them for when they’re actually serving someone.”

However, the business minister said that there is “no excuse” for not paying staff properly.

From 1 April 2017 the national minimum rates of pay in the UK will be increased. The national living wage rate for employees aged 25 years and over will go up to £7.50 per hour. The national minimum wage for 21 to 24 year olds will rise to £7.05 per hour; for 18 to 20 year olds to £5.60 per hour; and for 16 to 17 year olds to £4.05 per hour. The apprentice rate will increase to £3.50 per hour.

Aldi becomes fifth largest supermarket in the UK

Discount supermarket Aldi has continued its impressive growth and is now the UK’s fifth largest supermarket, according to the latest grocery market share figures from Kantar Worldpanel, published on Tuesday.

The German-owned chain saw its sales rise 12.4% year-on-year in the 12 weeks to 29 January, taking its market share to 6.2%. As a result, it overtook the Co-op’s 6% and took fifth place for the first time.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, commented: “Just a decade ago Aldi was the UK’s tenth largest food retailer, accounting for less than 2% of the grocery market. Since then the grocer has grown rapidly, climbing the rankings by an impressive five places to hold a 6.2% market share. Underpinned by an extensive programme of store openings, the past quarter has seen Aldi attract 826,000 more shoppers than during the same period last year.”

McKevitt also noted that, despite being overtaken by Aldi, Co-op’s 2% sales increase was well ahead of the market, continuing a run of growth stretching back to July 2015.

“A significant own label sales increase of 7% was behind the strong performance, with healthier ranges successfully catering to consumers’ good intentions for the new year,” he explained.

Tesco remains the clear leader in the UK grocery sector with a market share down slightly to 28.1%. Its sales in the 12-week period were up 0.3% year-on-year. Meanwhile, Sainsbury’s sales remained flat and its share of the market dropped 0.3 percentage points to stand at 16.5%.

Morrisons was the fastest-growing retailer within the big four, increasing its market share for the first time since June 2015 with a sales increase of 1.9% year-on-year.

Asda’s sales fell by 1.9% and its market share was down 0.6 percentage points, although Kantar Worldpanel pointed out that the retailer did see an increase in the number of shoppers visiting its stores compared to the same period last year.

Elsewhere, Lidl — another German discounter — saw a 9.4% year-on-year sales increase which increased its market share by 0.3 percentage points, leaving the retailer holding 4.5% of the UK grocery market.

Waitrose and Iceland also saw growth in the quarter.

Kantar Worldpanel reported that price rises continued into the new year, with like-for-like inflation on a basket of everyday groceries climbing to 0.7%.

“If prices continue to rise at the same rate for the rest of 2017, shoppers will find themselves around £27 worse off,” McKevitt said.

Survey shows rise in UK consumer confidence

UK consumer confidence rose in January but remained in negative territory, market research firm GfK said on Tuesday.

The monthly consumer confidence index showed a reading of -5 in the first month of 2017, up from -7 in December 2016. Overall, three of the five measures that make up the index increased in January, one was unchanged and the other decreased.

The measure that fell was the major purchase index, showing that shoppers were less willing to spend money on big purchases. This suggests that consumers might be starting to scale back spending as prices go up following the Brexit vote.

Commenting on the survey, Joe Staton, head of market dynamics at GfK, said that “Brexit jitters” and a “wobbly pound” pushing up prices were among the factors keeping consumer confidence down this month.

“Although consumers report that they are feeling upbeat about their personal financial situation for the coming year (four-point increase to +7), stubborn concerns about the wider economy looking back 12 months (-24 points) and ahead 12 months (-23 points) are ensuring the overall index score remains stuck in gloomy territory,” Staton explained.

Meanwhile, the decline in the major purchase index could be a foretaste of slowing consumer spending throughout 2017.

“Rising inflation and weak income growth is forecast to squeeze households’ disposable income, and these two factors could conspire to depress confidence for the year ahead,” Staton said. “It’s certainly difficult to see where the oomph will come from over the short term.”

GfK’s survey followed a more positive view of UK consumer confidence seen in Deloitte’s Consumer Tracker report. The quarterly survey, released on Monday, found that although overall consumer confidence in the fourth quarter of 2016 fell slightly, by one percentage point from the previous quarter (-5% to -6%), it remained higher than during the same period in 2015.

Five out of the six confidence measures showed positive year-on-year growth, with only confidence on disposable income falling in the fourth quarter, the business advisory firm said.

“So far, Brexit has not dented consumers’ confidence about the outlook for jobs, particularly among younger workers,” commented Ian Stewart, chief economist at Deloitte. “Rising real wages, credit growth, high employment and rather more positive business confidence have bolstered consumer spirits and have kept consumer confidence levels stable, and higher than 12 months previously.”

However, Stewart also warned that the new year brings “headwinds” that may challenge the UK’s current consumer-friendly economic conditions.

“Falling confidence about disposable income may be a sign that we are seeing the start of a squeeze on household incomes,” he said. “Rising inflation, largely driven by the weakening pound in recent months, will also put pressure on real incomes and consumer spending in 2017.”

Tesco announces plans to acquire wholesaler Booker

The UK’s biggest supermarket group, Tesco, revealed on Friday that it has agreed to buy the country’s biggest food wholesaler, Booker Group, in a deal valued at £3.7bn.

As well as its wholesale business, Booker owns the Premier, Budgens and Londis convenience store brands, while Tesco owns the One Stop convenience store chain.

Booker’s cash and carry outlets supply convenience stores, grocers, pubs and restaurants. As a result, Tesco will expand into the catering sector through the acquisition.

Under the terms of the agreement, Booker shareholders will receive 0.861 new Tesco shares and 42.6 pence in cash for each Booker share.

The two companies said the deal would create the “UK’s leading food business”. However, it is likely to face scrutiny from the Competition and Markets Authority (CMA).

Tesco chief executive Dave Lewis told the BBC’s Today programme that he believed the CMA would not block the merger because Booker’s franchise model means it would not result in Tesco owning any more stores.

But retail specialist Nick Bubb told the Guardian: “Our instant reaction is that the Competition and Markets Authority will have a field day with this, as although Tesco is mainly a retailer in the UK and Booker a wholesaler, Tesco does own the One Stop convenience store chain that competes with Booker’s interest in symbol groups and convenience store retailing (via Premier and Londis etc).”

As a result, Bubb said, “it is by no means clear that the CMA will allow things to proceed very far without having a good look at the overlap”.

The deal has been recommended by both boards of directors, but still needs approval from Tesco and Booker shareholders as well as regulators.

BT shares drop after cost of Italian accounting scandal is revealed

Shares in BT fell nearly 20% on Tuesday after the company revealed the cost of mismanagement at its Italian division.

BT announced in October 2016 that it had discovered “inappropriate behaviour” at the Italian business. At the time, the telecoms group estimated the financial impact to be £145m.

However, an independent investigation by KPMG has revealed the full scale of “improper accounting practices and a complex set of improper sales, purchase, factoring and leasing transactions”. These activities have resulted in the overstatement of earnings in the Italian business over a number of years, BT said.

As a result, the estimated cost has almost quadrupled to £530m.

BT said that the improper behaviour in its Italian business “is an extremely serious matter, and we have taken immediate steps to strengthen the financial processes and controls in that business”. The company is also conducting a broader review of financial processes, systems and controls across the group.

Corrado Sciolla, the president of BT’s Continental European operation, is expected to resign over the scandal, BBC News reported.

BT’s announcement comes just days before the release of its third-quarter results on Friday.

Updating its outlook, the company warned of reduced spending in the UK public sector and a slowdown in international corporate markets after the Brexit vote.

As a result, BT now expects expects operating profit for the current financial year to be around £7.6bn, compared to previous guidance of £7.9bn, and revenue to be flat. Both sales and profit are forecast to be flat for the year to March 2018.

UK retail sales decline in December

Seasonally adjusted figures released on Friday show that UK retail sales fell from November to December.

According to the Office for National Statistics (ONS), the quantity bought in retail sales increased by 4.3% compared with December 2015 but decreased by 1.9% compared with November 2016.

This was the biggest monthly drop for more than four and a half years, but the underlying trend remains one of growth: across the final three months of the year, retail sales were up 1.2%.

“That will buoy hopes that consumers still managed to support a solid pace of overall economic growth in the fourth quarter,” the Guardian reported.

Commenting on the figures, ONS senior statistician Kate Davies said: “Retailers saw a strong end to 2016 with sales in the final quarter up 5.6% on the same period last year, although the amount bought fell between November and December once the effects of Christmas are removed.

“There were some notably strong figures from smaller retailers, in particular butchers, who reported a significant boost in sales in the run up to Christmas.”

Overall, small businesses saw a 17.4% increase in sales compared with December 2015.

The ONS report also added to signs that prices in the shops are rising. Average store prices in December increased by 0.9% year-on-year and by 0.1% for all retailing excluding fuel prices — the first increase since June 2014.

Highlighting the risks of rising prices, Alan Clarke, an economist at Scotiabank, said that inflation figures earlier this week showed that prices rose more than expected in December, “and now we also know that sales volumes fell”.

This pattern looks set to continue in 2017, he suggested, with higher prices reducing disposable income and holding back consumer spending growth.

UK unemployment down, wage growth up

UK unemployment has continued to fall, according to new figures from the Office for National Statistics (ONS).

The ONS said on Wednesday that unemployment fell by 52,000 to 1.6 million in the three months to November, compared to the previous three-month period.

Year-on-year, the number of people out of work fell by 81,000. There were 31.8 million people in work, the ONS said.

The unemployment rate for September to November 2016 was 4.8%, down from 5.1% a year earlier. It has not been lower since July to September 2005.

Meanwhile, average weekly earnings excluding bonuses increased by 2.7%. In real terms (adjusted for consumer price inflation) pay increased by 1.7%.

Commenting on the figures, Suren Thiru, head of economics at the British Chambers of Commerce, said:

“Overall, with employment levels still close to record levels and unemployment continuing to fall, the latest indicators confirm that the UK jobs market remains a major bright spot for the UK economy.

“While labour market conditions could soften over the next year as economic growth slows, the high degree of flexibility in the jobs market will help limit the extent of any uptick in unemployment.”

However, Thiru also highlighted the possibility of household finances coming under increased pressure.

“Although there was a welcome pick-up in average earnings growth, the gap between wage and price growth is narrowing,” he said. “If this continues as we expect, real household incomes will be squeezed further, stifling consumer spending, which is a key driver of UK economic growth.”

Thiru stressed that the action was needed to safeguard the UK jobs market in the long term, for example by supporting firms looking to recruit and invest in their workforce, and ensuring companies have access to the workers they need.

UK inflation hits 1.6%

Higher air fares and food prices in December helped drive UK inflation to its highest rate for two-and-a-half years.

The Office for National Statistics (ONS) said on Friday that the Consumer Prices Index (CPI) rose by 1.6% in the year to December 2016, compared with a 1.2% rise in the year to November 2016.

The rate was the highest seen since July 2014, when it was also 1.6%.

ONS head of inflation Mike Prestwood noted that while inflation was higher in December it was still below the Bank of England’s 2% target.

“Rising air fares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation,” he said.

“Rising raw material costs also continued to push up the prices of goods leaving factories.”

Separate figures for producer price inflation showed that the prices of goods bought from factories were up 2.7% in December compared with a year ago, as manufacturers started to pass on higher input costs following the fall in the pound.

The prices paid by manufacturers for raw materials and energy jumped by 15.8% year-on-year, the biggest increase since September 2011.

Analysts warned that prices are likely to continue rising over the course of 2017.

BBC News quoted Tom Stevenson, an investment director at Fidelity International, who said: “Inflation is back with a vengeance.

“With more hints from the UK government that a hard Brexit is on the cards, we could see sterling fall even further in the lead-up to the prime minister pulling the trigger on Article 50. This will translate into further inflation in the short term.”

Conor D’Arcy, policy analyst at the Resolution Foundation thinktank, quoted by the Guardian, said the latest inflation figures showed that the days of very low price rises were “well and truly over”.

“It will be years until we see the overall economic impact of Brexit, but the one dead cert in 2017 is rising inflation — fuelled by a sharp fall in the pound,” D’Arcy said. “With nominal pay only expected to rise by 2.4% in 2017, the risk is we see a fresh pay squeeze with rising prices eating up all pay growth by the end of the year.”