ECONOMIC NEWS THIS WEEK
The manufacturing sector continued to
weaken, according to the September, Index of Production figures, which
recorded the largest monthly fall in manufacturing since May 1992.
On the retail side, the latest data from
the Index of Distribution found retailing output increased in August.
The October British Retail Consortium (BRC) Retail sales monitor also
showed growth in retail sales, indicating consumption remains fairly
robust. The Chartered Institute of Purchasing and Supply (CIPS) report
on the service sector was downbeat, with rapidly deteriorating balances
on the business activity, employment and future expectations indicators.
October new car registrations registered strong growth, mainly led
by private buyers.
The Halifax reported a small fall in
house prices last month, in line with the Nationwide index, which
was released last week. Housing supply showed continued to strength
in September, with an increase in housing starts and completions.
The first official travel and tourism
figures since September 11th, recorded a significant fall
in overseas travel to the UK.
The Recruitment and Employment Confederation
(REC) report on jobs for October suggested slowing labour market activity.
They reported falling salaries and demand for permanent staff dropping
at its fastest rate since 1997.
The National Institute of Economic and
Social Research projected 0.6% GDP in the three months to October-
close to the economy trend rate of growth.
The Monetary Policy Committee reduced
the bank repo rate by 0.5 per cent to 4 per cent, while the European
Central Bank also cut their interest rate by 0.5 per cent to 3.25
The week ahead sees the release of producer
prices and consumer price indices. The latest labour
market and retail sales statistics are also released. The
CBI publishes their Regional Trends Survey.
FACTS IN DETAIL
Index of Production
- Manufacturing output
by 1.6 per cent between August and September. In 2001Q3,
manufacturing output decreased by 0.8 per cent compared
with the previous quarter and was 2.9 per cent lower
than the same period a year earlier.
- Industrial production
fell by 1.2 per cent between August and September. In 2001Q3, production
decreased 0.6 per cent compared with
the previous quarter, and was 2.9 per cent lower than in
the same period of 2000.
Index of Distribution
- Output of the distribution
by 1.1 per cent in
the 3 months to August compared with the previous 3 months and by
4.1 per cent on the
same period a year earlier.
- Output in the retail
trade rose by 1.8 per cent in
the 3 months to August compared
with the previous 3 months and were up
5.6 per cent on the same period
a year earlier.
- The British Retail Consortium (BRC)
Retail Sales Monitor shows
the value of total retail sales in October up 8.6 per cent
on a year earlier (8.1 per cent September) and up 6.0 per cent
on a like-for-like basis (5.7 per cent September).
- The Halifax index fell by
0.5 per cent in October but was up 9.4% on a year
earlier (8.5 per cent in September).
- In September there were 14,600 private
housing starts, 700 more than in August. Starts in the three
months to September were up 3.7% on the previous three
- In September, there were 12,300 private
housing completions, 500 more than in August. Completions in
the three months to September were up 4.7% on the previous
- There were 787,000
holiday arrivals in the UK
in September 2001, 16
per cent lower than in September
- There were 1.9mn visitors (including
business trips and visits to family and friends, as well as holidays)
to the UK in September 2001, a decrease of 10 per cent on September
CIPS Report on
Services- October 2001
(Balances above 50 indicate expansion)
- Business activity was
October, down from 48.1
- Services employment was 48.3,
down from 50.2.
- Future business expectations
down from 64.1.
AND ECONOMIC PROSPECTS
Output and investment
GDP grew 2.9 per cent
in 2000. Economic growth was 2.2 per cent in the year
to 2001Q3, and 0.6 per cent in Q3 alone (preliminary estimate).
- Service sector output grew
0.8 per cent in Q3 (preliminary estimate), down marginally
from 0.9 per cent in Q2. Services output in Q3 was up 3.5 per
cent on a year earlier.
- Manufacturing output fell
0.8 per cent in the 3 months to September (compared with
previous 3m), and was down 2.9 per cent on a year earlier.
- Industrial production fell
0.6 per cent in the 3 months to September (compared with
previous 3m), and was down 2.9 per cent on a year earlier.
- Whole economy investment
was up 2.1% in Q2, compared with Q1, and was up 4.0 per cent
on a year earlier, following growth of 2.8 per cent in 2000.
- Business investment rose
1.9 per cent in 2000, and was 14.1 per cent of GDP
(following 1999s record 14.3 per cent share). In 2001Q2,
business investment rose 2.5 per cent, and was up 4.0
per cent on a year earlier.
- Manufacturing investment
fell by 0.7 per cent in 2001Q2, but was up 3.7 per cent
on a year earlier.
- Govt investment grew 15.4
per cent during 2000. In 2001Q2, it was up 10 per cent
on the previous quarter, and up 19.2 per cent on a year
averaged 28.16m in the 3 months to August, down 19,000
compared with the previous 3m and 181,000 higher than a year
earlier. The employment rate fell to 74.6% from 74.9% during the previous
3m (historic high of 75.0% in Spring 1990).
- ILO unemployment rate (5.1
per cent) is close to the lowest rate since the series began in
1984. ILO unemployment rose 53,000 to 1.51m in the
3 months to August (compared with previous 3 months), and was
down 62,000 on a year earlier.
- Claimant count unemployment
in September was 0.94m, down 4,900 on August. The claimant
rate was unchanged at 3.1%, the lowest since September
- Over 326,300 young people
have moved into work through the New Deal (to August 2001).
Inflation and Monetary
UK is experiencing the
longest period of sustained low inflation since the 1960s.
- RPIX inflation out-turns
have been within a narrow band between 1.8 per cent and 3.2
per cent since Bank independence.
- UK HICP inflation remains the lowest
in the EU (1.3 per cent in September).
- External forecasters expect inflation
to remain close to target.
- In November, the MPC cut interest
rates by 1/2 percentage point, to 4 per cent. The previous
change also a quarter-point cut took place in October
- Official interest rates have
not been so low for so long since the 1960s.
- Long-term interest rates
are around their lowest levels for over 35 years.
Trade and the Balance
UK export growth has
weakened not surprising, given the slowdown in world trade.
Goods export volumes were down 1.9 per cent in the 3 months
to August, compared with the previous three months. Goods imports
fell 1.5 per cent in the same period.
- Current account deficit was
£16.2 billion (1_ per cent of GDP) in 2000. Weaker outlook
for world trade means deficit projected to widen to over £25
billion, or 2_ per cent of GDP, in 2002 (Budget forecast).
- Fiscal stance in Budget 2001 is
at least as tight as set out in Budget 2000 and the Pre-Budget
- Current budget surplus was
£23.6 billion in 2000-01.
- Public sector net debt peaked
as a percentage of GDP in 1997, having risen sharply during the
early 1990s. It has fallen from 44.0 per cent at the end of financial
year 1996-97 to 31.6 per cent at the end of 2000-01, and
is forecast to remain close to 30 per cent.
Lines to take on impact
of US attacks on UK economy
What is the effect
of the terrorist attacks on the UK economy?
- Too soon to give estimates of the
implications for UK economy. Will be publishing latest forecasts
for the UK and world economy in the autumn PBR as usual.
- Tough decisions taken by Government
from 1997 to reduce public debt, to establish tight fiscal rules
and to make the Bank of England independent mean that UK is well
placed to withstand the ups and downs of the economic cycle and
the difficult global environment we now face.
- Economic fundamentals are strong.
Inflation is low and stable, the public finances are sound, employment
is at record highs and interest rates are at the lowest for nearly
- Also too early to estimate potential
impact on tourism [for info only Gulf War: US visitors
to the UK fell by over 20 per cent in 1991 although obviously complicated
by coinciding with US recession].
What action has been
taken to maintain the conditions for stability and growth?
- Interest rates have been brought down
worldwide, and the central banks of America, the Euro-area, Japan
and Britain have made clear their determination to take any necessary
- Oil prices - which have previously
risen in times of trouble - have fallen in the past month. The Government
will continue to work with the oil producing countries to ensure
steadiness of supply and prices.
- Where markets have failed, as on airline
insurance, governments across Europe and America have acted to fill
the gap, with a new short-term insurance guarantee.
What has the war cost?
- The cost of military operations to
date is relatively limited. But it would be inappropriate to give
detailed figures for the cost of operations and related activities
at this relatively early stage.
- If pressed on why no figures yet:
Because Ministers have made clear that this is not likely to be
a quick and simple campaign.
- If pressed on who will pay:
in line with usual practice, the net additional cost of military
operations will be met from the DEL Reserve.