Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Kingdom
2011 turned out to be a year of lacklustre growth, marked by one out of two quarters of contraction in GDP. Only exports
underpinned activity, while domestic demand contracted. Growing uncertainties regarding the resolution of the eurozone
sovereign debt crisis can partly explain the decline in household consumption and private investment in 2011. However,
certain domestic factors should not be overlooked. Ongoing efforts to consolidate public finances not only weighed on
public-sector consumption but also encouraged households to make precautionary savings. In 2012, private consumption
could rebound on the back of a further decline in inflation. The Bank of England is expected to opt for the status quo.
Tomorrow things will be better
With the third estimate of fourth-quarter GDP, the quarterly national accounts
were revised for full-year 2011. The revisions show a even more chaotic profile
for activity, with an initial contraction in GDP in the second quarter (-0.1% QoQ),
followed by a sharp rebound in Q3 (+0.6%) and a further decline of 0.3% QoQ at
the end of the year. All in all, GDP growth came in at 0.7% in 2011, versus 0.8%
initially estimated.
The more you have the more you want
In 2011, private consumption finally recorded almost as large a decline as in
2008 (-1.2% y/y versus -1.4%). After contracting for four consecutive quarters,
private consumption recovered in Q4 2011, rising 0.4% q/q and contributing 0.3
percentage point to GDP growth. The start-of-year figures confirm this trend
turnaround. Between December and February, retail sales grew by around 0.7%
q/q, following 1.1% q/q in Q4 2011, which suggests that consumption
underpinned activity during the period.
However, the medium-term outlook is still uncertain. On the one hand, the
disposable income of most households will be eroded by the austerity measures
provided for in the 2012 budget (see below), while their wages will increase only
modestly, as conditions in the labour market improve gradually from next year
on. Moreover, the rising cost of bank credit and elevated oil prices could also
depress consumer sentiment. After recovering regularly since last December,
consumer sentiment deteriorated again in March, whatever the survey
considered (European Commission, GFK). On the other hand, inflation should
continue to decelerate in the coming months, giving a real boost to household
purchasing power. In February, inflation was 3.4% following 3.6% the previous
month. It has therefore declined by around 2 percentage points since September
2011 and is back to its lowest level since November 2010, although it remains
above the upper bound of the Bank of England's inflation target. Moreover, core
inflation likewise continues to fall back in line with the lack of an upturn in the
labour market and rising productivity. It was 2.4% in February, its lowest level
since November 2009, following 2.7% in January. However, headline inflation
might not fall as much as expected by the Bank of England (which foresees a
rate of less than 2% in early 2013) if the current oil price levels were to persist for
several months. Oil prices calculated in sterling have increased by more than
10% since January and have completely wiped out the decline which followed
the peak of June 2008.
The contraction in household consumer spending in 2011 can also be explained
by the rise in the savings rate above its historical average, from 6.8% in Q4 2010
to 7.7% in Q4 2011. Apart from growing uncertainties in the second half of 2011
due to the economic and financial crisis, tax changes probably led UK
households to deleverage and make precautionary savings.
Conditions in the labour market continue to deteriorate. The Office for Budget
Responsibility estimates that the unemployment rate will reach 8.7% this year
before declining next year. The rate was 8.4% in December 2011, and for the
past three months it has been stable at this level, the highest since 1995. In
2011, the private sector created only 226,000 jobs, due to the economic
slowdown, following 427,000 the previous year. Moreover, the civil service
continues to downsize and the implementation of its job shedding programme is
gathering momentum. In 2011, 270,000 civil servants' positions were cut,
following 140,000 already in 2010. However, recent surveys indicate that the
private sector will probably increase the number of job creations in the coming
months, especially in services. In March, the employment index of the
CIPS/Markit composite index was in expansion territory for the fourth month
running.
After largely contributing to the contraction of activity in Q4 2011, manufacturing
production was struggling to recover in Q1 2012. To avoid a third consecutive
quarter of contraction, it would have to grow by more than 0.7% m/m in March.
However, the outlook in the sector is gradually improving. The overall
manufacturing PMI index was two points higher than the 50-mark in March, while
the index of the CBI survey concerning the production outlook on a three-month
horizon is rising since October 2011, reaching in March the highest level in the
past year. However, the North Sea gas leak on the Elgin platform since the end
of March could have significant consequences in the second quarter for
industrial production, GDP growth and government tax revenue. The production
facility had to be evacuated and its operations were stopped. If this situation
were to persist until the end of April, industrial production could be reduced by
around 0.3%, since oil and gas production account for 14% of total industrial
production.
Investment contracted in 2011 (-0.7% y/y), in line with the sluggish outlook for
demand and growing uncertainties in the eurozone in the second half of the
year. Given the high level of cash held by UK companies and the soundness of
their balance sheets, investment could recover sharply in the coming months in
line with the improvement in the global economic outlook.
The 2012 budget stays on the course of austerity
The 2012 budget, presented by Chancellor Osborne at the end of March,
confirms the government's intention to continue to consolidate public finances,
hurt by the economic and financial crisis. Firstly, the structural budget deficit
should be balanced by 2016-17. Secondly, the government debt-to-GDP ratio
should start to decline in 2015. The fiscal consolidation and debt stabilisation
targets seem reasonable. The budget deficit for 2011-2012 (from 1 April 2011 to
31 March 2012) is expected to be below the target of GBP 127 billion set last
autumn, at GBP 126 billion (8.3% of GDP). Over the first eleven months of the
fiscal year (the figure for March is not yet available), it is around GBP 93 billion,
which is good news from the viewpoints of both compliance with the timetable
and the effect on activity.
Despite a still fragile economic environment, the government can thus maintain
its free-market course and pursue its objective of rebalancing growth factors in
favour of exports and corporate investment, without having to tighten its policy
further. The tax reform announced in the 2012 budget forms part of this plan,
with tax relief measures for businesses and the wealthiest households (for an
exhaustive review, see Ecoweek 12-12, "United Kingdom: A conservative
budget"). However, consolidation of public finances in 2012 and 2013 is based
mainly on a smokescreen measure. The nationalisation of the Post Office
Pension Fund should make it possible to sell 90% of the fund's assets (GBP 28
billion) and reduce the fiscal deficit by the same amount, to less than 6% of GDP
in March 2013, after more than 8% in March 2012. Eventually, this one-off
measure is not neutral, because the government will have to finance its
commitments to retiring Post Office employees.
No monetary change in 2012
After raising its bond purchase ceiling by GBP 50 bn to GBP 325 bn in February,
the Bank of England decided to leave its monetary policy unchanged at the
Monetary Policy Committee meeting on 5 April. The minutes will be available on
19 April. In March, two members of the MPC had, as in February, voted in favour
of raising the bond purchase ceiling further, while the other members has
expressed concern about the upside risks to inflation due to the surge in oil
prices. It now seems unlikely that the Bank of England will decide on further
monetary easing, barring a further economic shock. In particular, although the
rise in oil prices is due mainly to a supply shock, following Teheran's decision to
halt sales to London and Paris, it could gather momentum due to the global
recovery. The next stage could therefore be to put in place a policy for a gradual
exit from the crisis, but such a decision will probably not be made until next year.
In light of the 2012 budget and as economic and financial stress in the eurozone
gradually subsides, the United Kingdom will probably avoid the loss of its AAA
rating, threatened by Moody’s and Fitch ratings agencies. The Cameron
government will probably be able to stabilise the government debt level by 2015,
thanks to the steady decline in the fiscal deficit and the fall in its cost of
financing. In these circumstances, the UK bond market could keep its safe haven
status for some time yet. Since the start of the year, the 10-year gilt yield has
remained close to its all-time lows of mid-January 2012, while rising slightly, from
1.95% to 2.20% at the end of March. It will probably continue to rise gradually as
the recovery gathers strength and the crisis exit policy seems closer.
Moreover, sterling also benefits from a safe haven status, at a time when all the
uncertainties regarding the resolution of the eurozone economic and financial
crisis have not been removed. In the near future, it should therefore remain firm,
especially against the euro.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Kingdom
2011 turned out to be a year of lacklustre growth, marked by one out of two quarters of contraction in GDP. Only exports
underpinned activity, while domestic demand contracted. Growing uncertainties regarding the resolution of the eurozone
sovereign debt crisis can partly explain the decline in household consumption and private investment in 2011. However,
certain domestic factors should not be overlooked. Ongoing efforts to consolidate public finances not only weighed on
public-sector consumption but also encouraged households to make precautionary savings. In 2012, private consumption
could rebound on the back of a further decline in inflation. The Bank of England is expected to opt for the status quo.
Tomorrow things will be better
With the third estimate of fourth-quarter GDP, the quarterly national accounts
were revised for full-year 2011. The revisions show a even more chaotic profile
for activity, with an initial contraction in GDP in the second quarter (-0.1% QoQ),
followed by a sharp rebound in Q3 (+0.6%) and a further decline of 0.3% QoQ at
the end of the year. All in all, GDP growth came in at 0.7% in 2011, versus 0.8%
initially estimated.
The more you have the more you want
In 2011, private consumption finally recorded almost as large a decline as in
2008 (-1.2% y/y versus -1.4%). After contracting for four consecutive quarters,
private consumption recovered in Q4 2011, rising 0.4% q/q and contributing 0.3
percentage point to GDP growth. The start-of-year figures confirm this trend
turnaround. Between December and February, retail sales grew by around 0.7%
q/q, following 1.1% q/q in Q4 2011, which suggests that consumption
underpinned activity during the period.
However, the medium-term outlook is still uncertain. On the one hand, the
disposable income of most households will be eroded by the austerity measures
provided for in the 2012 budget (see below), while their wages will increase only
modestly, as conditions in the labour market improve gradually from next year
on. Moreover, the rising cost of bank credit and elevated oil prices could also
depress consumer sentiment. After recovering regularly since last December,
consumer sentiment deteriorated again in March, whatever the survey
considered (European Commission, GFK). On the other hand, inflation should
continue to decelerate in the coming months, giving a real boost to household
purchasing power. In February, inflation was 3.4% following 3.6% the previous
month. It has therefore declined by around 2 percentage points since September
2011 and is back to its lowest level since November 2010, although it remains
above the upper bound of the Bank of England's inflation target. Moreover, core
inflation likewise continues to fall back in line with the lack of an upturn in the
labour market and rising productivity. It was 2.4% in February, its lowest level
since November 2009, following 2.7% in January. However, headline inflation
might not fall as much as expected by the Bank of England (which foresees a
rate of less than 2% in early 2013) if the current oil price levels were to persist for
several months. Oil prices calculated in sterling have increased by more than
10% since January and have completely wiped out the decline which followed
the peak of June 2008.
The contraction in household consumer spending in 2011 can also be explained
by the rise in the savings rate above its historical average, from 6.8% in Q4 2010
to 7.7% in Q4 2011. Apart from growing uncertainties in the second half of 2011
due to the economic and financial crisis, tax changes probably led UK
households to deleverage and make precautionary savings.
Conditions in the labour market continue to deteriorate. The Office for Budget
Responsibility estimates that the unemployment rate will reach 8.7% this year
before declining next year. The rate was 8.4% in December 2011, and for the
past three months it has been stable at this level, the highest since 1995. In
2011, the private sector created only 226,000 jobs, due to the economic
slowdown, following 427,000 the previous year. Moreover, the civil service
continues to downsize and the implementation of its job shedding programme is
gathering momentum. In 2011, 270,000 civil servants' positions were cut,
following 140,000 already in 2010. However, recent surveys indicate that the
private sector will probably increase the number of job creations in the coming
months, especially in services. In March, the employment index of the
CIPS/Markit composite index was in expansion territory for the fourth month
running.
After largely contributing to the contraction of activity in Q4 2011, manufacturing
production was struggling to recover in Q1 2012. To avoid a third consecutive
quarter of contraction, it would have to grow by more than 0.7% m/m in March.
However, the outlook in the sector is gradually improving. The overall
manufacturing PMI index was two points higher than the 50-mark in March, while
the index of the CBI survey concerning the production outlook on a three-month
horizon is rising since October 2011, reaching in March the highest level in the
past year. However, the North Sea gas leak on the Elgin platform since the end
of March could have significant consequences in the second quarter for
industrial production, GDP growth and government tax revenue. The production
facility had to be evacuated and its operations were stopped. If this situation
were to persist until the end of April, industrial production could be reduced by
around 0.3%, since oil and gas production account for 14% of total industrial
production.
Investment contracted in 2011 (-0.7% y/y), in line with the sluggish outlook for
demand and growing uncertainties in the eurozone in the second half of the
year. Given the high level of cash held by UK companies and the soundness of
their balance sheets, investment could recover sharply in the coming months in
line with the improvement in the global economic outlook.
The 2012 budget stays on the course of austerity
The 2012 budget, presented by Chancellor Osborne at the end of March,
confirms the government's intention to continue to consolidate public finances,
hurt by the economic and financial crisis. Firstly, the structural budget deficit
should be balanced by 2016-17. Secondly, the government debt-to-GDP ratio
should start to decline in 2015. The fiscal consolidation and debt stabilisation
targets seem reasonable. The budget deficit for 2011-2012 (from 1 April 2011 to
31 March 2012) is expected to be below the target of GBP 127 billion set last
autumn, at GBP 126 billion (8.3% of GDP). Over the first eleven months of the
fiscal year (the figure for March is not yet available), it is around GBP 93 billion,
which is good news from the viewpoints of both compliance with the timetable
and the effect on activity.
Despite a still fragile economic environment, the government can thus maintain
its free-market course and pursue its objective of rebalancing growth factors in
favour of exports and corporate investment, without having to tighten its policy
further. The tax reform announced in the 2012 budget forms part of this plan,
with tax relief measures for businesses and the wealthiest households (for an
exhaustive review, see Ecoweek 12-12, "United Kingdom: A conservative
budget"). However, consolidation of public finances in 2012 and 2013 is based
mainly on a smokescreen measure. The nationalisation of the Post Office
Pension Fund should make it possible to sell 90% of the fund's assets (GBP 28
billion) and reduce the fiscal deficit by the same amount, to less than 6% of GDP
in March 2013, after more than 8% in March 2012. Eventually, this one-off
measure is not neutral, because the government will have to finance its
commitments to retiring Post Office employees.
No monetary change in 2012
After raising its bond purchase ceiling by GBP 50 bn to GBP 325 bn in February,
the Bank of England decided to leave its monetary policy unchanged at the
Monetary Policy Committee meeting on 5 April. The minutes will be available on
19 April. In March, two members of the MPC had, as in February, voted in favour
of raising the bond purchase ceiling further, while the other members has
expressed concern about the upside risks to inflation due to the surge in oil
prices. It now seems unlikely that the Bank of England will decide on further
monetary easing, barring a further economic shock. In particular, although the
rise in oil prices is due mainly to a supply shock, following Teheran's decision to
halt sales to London and Paris, it could gather momentum due to the global
recovery. The next stage could therefore be to put in place a policy for a gradual
exit from the crisis, but such a decision will probably not be made until next year.
In light of the 2012 budget and as economic and financial stress in the eurozone
gradually subsides, the United Kingdom will probably avoid the loss of its AAA
rating, threatened by Moody’s and Fitch ratings agencies. The Cameron
government will probably be able to stabilise the government debt level by 2015,
thanks to the steady decline in the fiscal deficit and the fall in its cost of
financing. In these circumstances, the UK bond market could keep its safe haven
status for some time yet. Since the start of the year, the 10-year gilt yield has
remained close to its all-time lows of mid-January 2012, while rising slightly, from
1.95% to 2.20% at the end of March. It will probably continue to rise gradually as
the recovery gathers strength and the crisis exit policy seems closer.
Moreover, sterling also benefits from a safe haven status, at a time when all the
uncertainties regarding the resolution of the eurozone economic and financial
crisis have not been removed. In the near future, it should therefore remain firm,
especially against the euro.
No comments:
Post a Comment