Finance Matters

Posts Tagged ‘Economy News’

The rate of Consumer Prices Index (CPI) inflation fell to 4.2 per cent in December, from 4.8 per cent in November, according to the latest figures from the Office for National Statistics (ONS).

This is the third consecutive month that inflation has fallen and December’s figures represents the biggest monthly fall since April 2009.

Inflation is now at its lowest level since June last year and many economists are predicting a continued decline throughout the year.

In November, the Bank of England predicted that inflation would fall below the Government’s inflation target of 2 per cent by the end of this year.

Retailers’ attempts to generate sales by cutting prices in the run-up to Christmas have helped to push inflation down.

The price of clothing and footwear fell by 2.8 per cent between November and December and fuel prices fell by 1.1 pence a litre, although food prices increased by 1.4 per cent.

Although the fall in inflation will help to ease the strain on household incomes, analysts expect consumers to continue to control their spending in the face of continuing uncertainty over jobs and tightening credit conditions.

While there was good news on inflation today, a worrying economic forecast by the Ernst & Young Item Club suggests that the UK economy has fallen into a ‘technical’ recession due to the eurozone crisis and rising unemployment.

The Item Club has cut its GDP growth rate forecast from 1.5% to 0.2% for 2012 and expects unemployment to rise by a further 300,000 this year, to just below three million people

It does not expect the UK economy to recover until CPI inflation drops to 2 per cent late this year.

The Chartered Institute of Personnel and Development expects unemployment to remain above 2.5 million until at least 2016.

Britain’s economy stagnated in the final quarter of 2011 and is “very likely” to contract in the first half of 2012 according to the British Chambers of Commerce (BCC).

The euro zone debt crisis caused the economy to stagnate in 2011 and it has failed to improve this year, with the survey suggesting that one or two quarters of negative growth are possible.

A recession is usually defined as a decline in GDP for two or more consecutive quarters, a situation which the BCC believes can be avoided if the Government takes action.

The squeeze on household incomes from the Government’s austerity measures, high unemployment and rising prices have caused consumers to curb their spending.

In this environment retailers are struggling to boost sales and the housing market is floundering.

Although retailers such as Marks & Spencer managed to increase sales in the Christmas trading period, this was only achieved through heavy discounting, which still failed to boost the sales of higher-priced items such as household goods.

BCC director general John Longworth urged the Government to quickly implement the measures outlined by the Chancellor in the Autumn Statement.

He said: “Measures to improve the flow of credit to businesses, reforms of our complex planning system, and investment in infrastructure projects are all needed now”.

A recent poll by Ipsos MORI suggests that most business leaders believe the eurozone crisis will cause the UK economic climate to worsen this year.

The ‘captains of industry’ survey found that found that fewer than 10 per cent of 100 company bosses questioned expected the economy to improve.

However, 84% support the current Government and said that they expect its policies to improve the British economy in the long-term.

In its New Year report the CBI has called on UK businesses to increase their export activity to help the UK re-balance its economy.

The CBI believes that this could boost the UK’s economy by £20 billion over the next eight years.

The organisation is also calling on the private sector to invest £140 billion in the country’s infrastructure to help offset public sector cuts and to stabilise government debt.

The Government has already announced a number of projects in its National Infrastructure Plan including major improvements to the UK’s transport and broadband networks.

These re-balancing measures would help the UK reduce its dependence on debt-driven household and government spending, the CBI’s report suggests.

John Cridland, the CBI Director-General warned: “If we fail, the UK’s debts will continue to grow and our trend growth-rate will remain low. Only through rebalancing can we return growth to long-term sustainable levels.”

Mr Cridland warned that “2012 is going to be a hard road,” a view that is shared by UK businesses according to recent surveys.

According to new research by accountancy firm Deloitte, most companies are pessimistic about the coming year with more than 50 per cent of finance directors expected the UK to fall back into recession.

The monthly Lloyds Bank business barometer also suggests a fall in confidence among smaller companies in December, with around three quarters believing that another recession is likely.

The Financial Times today reported a similar fall in confidence among economists, with the results of a new poll suggesting that the UK economy could deteriorate to levels not seen since 2009, in the face of the continuing debt crisis in the eurozone.

However, only a small minority of the economists surveyed by the Financial Times believed that the Government should back-track on its austerity plan.

The Bank of England’s latest inflation attitudes survey suggests that fewer people believe inflation is being controlled effectively with interest rates.

In August, when the survey was last carried out, the proportion satisfied that the Bank was doing its job to set interest rates to control inflation, versus those dissatisfied, was 16 per cent, but this figure fell to just 9 per cent in the November survey.

The represents the lowest level of satisfaction since the survey started in November 1999.

Consumers who participated in the November survey said they expected prices to rise by 4.1 per cent over the next year.

They expect an inflation rate of 4.1 per cent over the same period, a slight fall from expectations of 4.2 per cent inflation recorded in the August survey.

Those surveyed said they expected inflation to be a median of 3.4 per cent in 2013, increasing slightly to 3.5 per cent in five years’ time.

The proportion of those surveyed who expect interest rates to fall over the next year fell to six per cent in the November survey, compared with 7 per cent in August, while 39 per cent said they expected interest rates to increase, compared with 38 per cent in August.

Although inflation fell to 4.8 per cent last month, the survey showed that people perceive it to be 5 per cent.

The results are based on a survey carried out by GfK NOP on behalf of the Bank of England, of 1,853 people in the UK aged 16 and over between November 3 and 8.

Meanwhile, in the eurozone inflation reached 3 per cent in November, the third consecutive month it has hit this level.

The eurozone economy is expected to have contracted by 0.6 per cent in the final three months of 2011.

The Consumer Prices Index (CPI) rate of inflation fell to 4.8 per cent in November it was revealed yesterday, representing the second consecutive 0.2 percentage point monthly decline.

Although the price of domestic heating and alcohol increased during the month, this was offset by a fall in the cost of food, petrol, clothing, furniture and household equipment.

A good harvest and competition between supermarkets helped to keep food prices down in November.

The Bank of England expects inflation to continue on a downward trend, reaching 1.5 per cent by the middle of next year.

It is then expected to remain below the Government’s 2 per cent inflation target until at least 2014.

Despite the fall, inflation is still outstripping wage rises and economic growth is expected to remain subdued, with the cost of goods and services rising twice as fast as household incomes.

According to figures released today by the Office for National Statistics (ONS) average earnings, excluding bonuses, were up 1.8 per cent annually in November.

Taking into account inflation, rising costs, ongoing cuts in public sector spending and a downturn in exports, analysts still expect the UK will fall back into recession next year.

There was also bad news on jobs today, with the number of people unemployed reaching 2.64 million in the three months to October, the highest level for 17 years.

Young people are fairing particularly badly in the jobs market, with 1.027 million people between the ages of 16 and 24 out of work.

This is the highest level of youth unemployment since records began in 1992.

However the overall unemployment rate remained steady at 8.3 per cent according to Office for National Statistics (ONS) figures.

With businesses worried over the ongoing eurozone debt crisis, a further rise in unemployment is expected over the winter.