July 2014

In the trading room today: What’s Next for the USD after the FOMC Announcement? In the aftermath of the Federal Open Markets Committee’s monetary policy announcement, we turn our attention to the upcoming U.S. Non-farm Payrolls report and explore the outlook for the USD against the EUR, the GBP, and other currency majors, we analyze the bearish breakouts in the EUR/USD and the GBP/USD currency pairs, we take a look at the weakness of the AUD and NZD, we continue to monitor the rally of the USD vs JPY, we highlight the market’s reaction to the Euro-zone HICP and Unemployment Rate, and the U.S. Jobless Claims, we discuss new forecasts from Standard Chartered and Societe Generale, and prepare for the trading session ahead.


The latest US growth figures show America has recovered from its winter contraction. US GDP grew by annualized rate of 4.0% in Q2, while the Q1 reading was revised higher to show a smaller contraction by 2.1%. More details here…


Powered by Guardian.co.ukThis article titled “US economy beats forecasts with 4.0% growth – business live” was written by Graeme Wearden, for theguardian.com on Wednesday 30th July 2014 13.23 UTC

Ben Brettell, Hargreaves Lansdown Senior Economist, is encouraged that the US economy has bounced back faster than expected.

“The rebound was driven by lower energy prices, strength in the manufacturing sector and increased demand for exports. A healthier labour market is boosting consumer confidence, which is at a near-seven-year high.

However, the IMF and the Federal Reserve disagree on prospects for the year as a whole, with the IMF forecasting a disappointing 1.7% and the Fed a more optimistic 2.1%-2.3%.

Paul Ashworth, chief US economist at Capital Economics, reckons the Fed will raise US interest rates in eight months time.

This GDP report supports our view that an improving economy will persuade the Fed to begin raising rates in March next year.

US GDP reaction starts here

Nancy Curtin, CIO at Close Brothers Asset Management, says that growth in the US has stepped up a level in recent months.

“The US economy has a spring back in its step after the disastrous impact of arctic conditions in the first quarter. Since the weather abated, data has been broadly positive.

Strong figures for the service sector combined with resurgent consumer confidence and improving manufacturing all hinted at a revival in fortunes, and the second quarter reading has delivered in spades.”

US dollar rises after GDP report

The US dollar has rallied on the back of the US GDP report, gaining 0.2% against both the pound and the euro.

Traders are calculating that the growth report means the Federal Reserve is likely to raise interest rates a little earlier than before.

Dovish Fed members, though, are likely to remain focused on the US labour market. As Janet Yellen pointed out to senators this month, wage growth remains weak.

A stronger dollar is also good news for the eurozone:

Reminder: Fed policymakers are meeting today, and are expected to trim their stimulus programme by $10bn per month, from $35bn to $25bn.

Neil King, the WSJ’s global economics editor, isn’t getting carried away with excitement either:

Don’t forget, GDP estimates can go down as well as up.

As our US business and economics editor Heidi Moore tweets, a growth rate of 4.0% per year may prove too good to be true:


US GDP: some detail

So, what drove the US recovery in the second quarter?

Consumers played a big role. The Commerce Department says consumer spending grew by 2.5%, with Americans buying more long-lasting manufactured goods. Spending on services also rose.

But some economists are worried that the growth figures are flattered because companies expanded their inventories – stocking up on goods and materials for the future.

Inventory building provided around a third of the total growth recorded in Q2.

Business investment, government spending and investment in home building all picked up too.

And exports jumped by 9.5%, having slumped by 9.2% in the first quarter — as ice and snow hampered US companies.

The Commerce Department has also revised last year’s GDP figures — showing that America grew more rapidly than previously estimated in 2013.

The revisions to Q1 GDP means that the US economy has grown by 0.9% so far this year.

More good news. The US economy did not shrink as badly as feared in January-March.

The Commerce Department has revised up its estimate of GDP in the quarter, to an annualised rate of -2.1%, from -2.9% before.

US economy grew by 4.0% annualised rate in Q2 – beating forecasts

Breaking: The US economy grew by 4% on an annualised basis in the second three months of 2014.

That’s a much stronger bounceback than expected, and means US GDP rose by 1.0% on a quarter-on-quarter basis.

America has put its winter contraction firmly behind it — that’s going to calm some nerves. Bloomberg are calling it a “really strong” report.

Encouragingly, business investment has risen strongly during the quarter — by 5.5%.

Lots more detail and reaction to follow!


US growth figures: a preamble

The waiting is nearly over…. We’re about to find out whether the US economy has bounced back from its winter contraction.

The first estimate of America’s GDP for April-June is due shortly, at 8.30am Washington time or 1.30pm BST.

Economists think GDP will rise by around 0.7% to 0.8% in the quarter, showing the economy is growing at an annualised rate of around 3%.

A strong reading would suggest America’s economy is back on track. A weak reading, though, will raise fears over the strength of the global recovery….

Interesting….trading has been suspended on the Moscow stock market. No reason was given, according to Reuters….

Russian shares rise after sanctions, but trouble lies ahead

Russia’s stock market has shrugged off the sanctions announced by the US authorities last night.

The RTS index of the largest Russian companies has jumped by 2.3% so far today, with almost every share gaining ground.

And the Russian currency has also strengthened, to 35.8 rubles to $1, from 35.8 last night.

Moscow investors may have been reassured by Russia‘s central bank, which has pledged to support the financial institutions hit by US sanctions.

In an online statement, the bank promised to “take adequate measures” to support targeted institutions.

The long term consequences of the deterioration of relations between Russia and the West could be severe, though.

David Savage, sanctions expert at law firm Eversheds, warns that Russia’s economic growth will suffer:

“This latest wave of sanctions should come as no surprise. The impact of these far-reaching measures is as yet unknown, but with both the EU and the US imposing further restrictions on Russia’s financial sector, as well its weapons and energy industries, it seems likely that the Russian economy will increasingly stagnate over the coming months.

The corollary of this, of course, is that EU and US companies with Russian interests are also likely to experience some financial discomfort going forward.”

And there’s a good piece in the FT about the end of a “25-year chapter with Russia”

Barclays chief executive, Antony Jenkins, apparently supports the proposed tough rules for the City ‘in principle’:

The British Bankers’ Association is concerned that the new rules on bonus clawbacks and management accountability could make it hard for the City to hire and keep staff.

Really? These new rules (details) should only affect bankers who make an almighty botch of the job – Britain’s had its fair share of them, thanks.

Associated Press is reporting that the central bank of Albania has been burgled, losing 713 million leke (or just over £4m), from its reserve storage building.

Two bank employees have been arrested, according to AP, which adds:

The Bank of Albania, which is in charge of the country’s price stability and manages 16 private banks, said Wednesday that the cash was stolen over time. It did not provide further details, but insisted that the bank’s operations had not been affected and it was supplying the country’s banking system with the necessary liquidity.

Local media reported that one of the suspects acknowledged the theft over the last four years, saying he had spent much of the money on gambling. The bank, police and judicial authorities declined to comment on the report.

A Greek update

Over to Greece where the government has forged ahead with a series of steps aimed clearly at placating international creditors and the population at large.

Our correspondent Helena Smith reports on this week’ developments:

After appointing a new team to head the country’s privatization agency – the fifth such change since 2012 – finance ministry officials signaled that a major shift in doing business with foreign lenders keeping the country afloat was also underway.

Instead of holding talks in Athens, the next round of negotiations, currently scheduled for September, would take place in the neutral setting of Paris, they said, before mission chiefs and technical teams representing the EU, ECB and IMF wrap up the review with a quick visit to the Greek capital at the end of the month. “The spectre of the troika coming in for long, drawn out talks will, we hope, soon belong to the past,” one insider confided. “We want to de-dramatise the process.”

With the prospect of early elections a distinct possibility if political parties fail to muster enough votes to elect a new president in February, the ruling coalition is keen to avoid political tensions at a time when the stridently anti-austerity main opposition Syriza party, the victor of Euro elections in May, is gaining ground.

Prime minister Antonis Samaras has reportedly beseeched troika heads to change the location of the of talks for several months arguing that the presence of international monitors on such a regular basis in the Greek capital is not only fuel for the fire of anti-bailout but severely undermining for the government itself and the morale of Greeks at large.

Ministers – targeted by anti-bailout protestors from unionists to sacked cleaners – have frequently complained of the drama surrounding such visits including the lack of respect the international mission chiefs have often displayed for politicians in Athens.

The Greek finance minister Gikas Hardouvelis, an economics professor appointed to the post in June, will no doubt see the change of tact as particularly encouraging, Helena adds:

The no-nonsense Hardouvelis, who has promised to implement a number of reforms in what he says will be an “American August,” has openly spoken of changing the timbre of relations with the troika, insisting that the enormous sacrifices made by Greeks have to be respected. The academic came to the job asking that lenders split their review of the economy in two parts between fiscal and structural goals and the finding gap the debt-stricken country s likely to face in 2015. Ministers hope the shift will help Athens negotiate a new memorandum that Greeks will feel they own – many currently feel that bailout terms have been thrust upon them.

The government hopes, meanwhile, to show creditors that it also means business, tabling a huge omnibus bill of reforms in parliament on Tuesday signed by 13 ministers. The far-reaching legislation – changes range from new tax laws to relaxation of commercial activities on Greek seashores – is due to be voted on by August 8 and is key to the country receiving its next 1 bn euro aid installment in September.

Similarly, Greek officials hope that the new team overseeing the sale of state assets will kick-start long delayed privatizations even if they also concede that the process will likely be linked to debt reduction talks that the government hopes to launch in the fall.


Back in the eurozone, and Ireland’s unemployment rate has fallen to 11.5% in the latest sign that its economy is slowly healing.

The number of people on the ‘Live Register’ fell by 3,400 in July to 382,800, on a seasonally-adjusted basis.

So far this year, the Irish jobless total has dropped by 8.5%.

Some instant reaction to the new proposals to raise standards in British banking:

(that’s the clock will start ticking when the bonus is awarded, rather than waiting until they are actually paid)

(this ‘bright idea’ was proposed by the ResPublica thinktank yesterday)

UK bankers face tougher bonus clawbacks and a new ‘approval regime’

It’s official: British bankers could see their bonuses clawed back seven years after they are granted, under new rules to clean up the City.

Bonuses will also be held back for longer, to give more time for incompetence or malpractice to come to light.

Britain’s financial watchdogs have also proposed a “new approval regime” for senior executives who could cause “serious harm” to customers, or bring a bank crashing down.

That will force banks to explain exactly who is responsible for what, making it harder for top bankers to evade responsibility. And new conduct rules will spell out the behaviour expected from them.

The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) say their joint proposals “will make it easier for firms and regulators to hold individuals to account”.

Here are the key proposals to improve accountability:

  • A new Senior Managers Regime which will clarify the lines of responsibility at the top of banks, enhance the regulators’ ability to hold senior individuals in banks to account and require banks to regularly vet their senior managers for fitness and propriety;
  • A Certification Regime requiring firms to assess fitness and propriety of staff in positions where the decisions they make who could pose significant harm to the bank or any of its customers; and
  • A new set of Conduct Rules, which take the form of brief statements of high level principle, setting out the standards of behaviour for bank employees.

And on pay:

  • Increasing the alignment between risk and reward over the longer term, by requiring firms to defer payment of variable remuneration (e.g. bonuses) for a minimum of five or seven years depending on seniority, with a phased approach to vesting;
  • Further enhancing the ability of firms to recover variable remuneration, even if paid out or vested, from senior management if risk management or conduct failings come to light at a later date;
  • Options to address the problem that employees can sometimes evade the application of malus – reductions in unvested awards – by changing firms; and
  • Strengthening the existing presumption against discretionary payments where banks have been bailed out.
  • The PRA has also today published final rules on clawback which introduce a seven-year minimum period for clawback from the date of award. These rules will come into force on 1 January 2015.

The curious case of Barclays’ vanishing compensation ratio

Back to Barclays’ results — and City experts are scratching their heads wondering why it has stopped telling us how much money is being set aside for its investment bankers.

City editor Jill Treanor explains:

One of the numbers analysts and journalists look for in Barclays’ numbers is the compensation to income ratio – a measure how much of income is being kept aside to pay investment bankers.

In the first quarter of the year, the figure was 46%, as set out here on p16.

But it seems Barclays, which has been publishing this number on a quarterly basis, is no longer going to do so. The number is not there in the interim results published today and the finance director said today “we don’t disclose this at the half year”.

What price transparency? City veteran Christopher Wheeler isn’t impressed:

Ireland’s finance minister, Michael Noonan, has just welcomed Allied Irish Bank’s first profit since the crisis:


Allied Irish Bank posts first profit since the crisis

One of Ireland’s state-owned banks is back profit for the first time since the financial crash that brought the Republic to the brink of national bankruptcy.

From Dublin, Henry McDonald reports on this landmark moment in Ireland’s recovery.

Allied Irish Bank, which was rescued by the taxpayer, reported today it has made a €437m profit in the first six months of 2014.

The AIB received more than 20 billion euros in state aid since 2009 and was one of the banks that over-lent to builders and property speculators during the Celtic Tiger boom.

In Northern Ireland and Britain AIB operates under the name First Trust Bank.

Return to profitability comes as the Irish banking sector prepares for a European wide financial stress test in the autumn carried out by the European Central Bank.

The head of AIB, which is still 99.8% owned by tax payers, said the recovery in the overall Irish economy had helped the bank back to profitability.

AIB’s chief executive officer, David Duffy, said the bank had “achieved its stated aim of returning to sustainable profitability” with its half year results “reflecting strong improvements” in its performance in several areas.

“As the Irish economy and the bank recovers, we remain focused on growth and maximising value for the Irish State, as 99.8% shareholder, and all other stakeholders over time,” he said.

But like all Irish banks, AIB still faces a major problem – tens of thousands of home owners are still in mortgage arrears, with many of them trapped in negative equity.

Britain’s energy regulator, which has faced accusations of toothlessness in the past, has announced new price proposals that will cut bills, a little.

Ofgem’s plan will see UK electricity bills fall by £1 per month on average, and will also lead to distribution companies spending £17bn upgrading the UK’s energy network.

More here: UK electricity bills to fall by £12 a year, Ofgem says


A quick round-up of some other corporate news:

Two more UK firms, British American Tobacco and contract caterer Compass, have warned that the strong pound is eating into their profits.

The Brazil World Cup has helped ITV post a 40% surge in pre-tax profits. CEO Adam Crozier says.

“In the first six months of the year, we again delivered double-digit profit growth in every area of the business and increased revenues by 7%.

Rightmove is benefitting from the upturn in the UK property sector, with revenue up 20%.

While new low-calorie sandwiches and a better hot drinks range has lured more customers into Greggs – the UK bakery chain has posted a 3% rise in sales, and a 48% surge in profits.

Heads-up. British bankers are about to be told that they’ll face some of the strictest bonus regulations in the world.

The proposal won’t stop huge payments being handed out, but they will give authorities the ability to claw back bonuses within the next seven years.

This would mean that a banker could be forced to return the cash if unexpected losses come to light, or unexpected losses.

The banking watchdog, the Prudential Regulation Authority, will announce the plans at 10am.

Sky News reckons the PRA has abandoned the idea of making the bonus rules retrospective, though.

David Roman of the Wall Street Journal also flags up that Spain’s economy is outpacing most European rivals.

Economists say this level of growth [+0.6% in Q2] is likely to make Spain the best or one of the best economic performers in the euro zone in the quarter, largely due to a series of effective economic reforms and because of a rebound effect after a long economic slump


Bloomberg’s Maxime Sbaihi reckon’s Spain’s economy is growing faster than the experts predicted.

The Spanish economy does now appear to be outperforming the rest of the eurozone — which is most unlikely to match Spain’s 0.6% growth in the last three months.

Both France and Germany are expected to report lacklustre growth.


Spanish growth hits six-year high, but prices fall

Spain has taken another major step away from the darkest days of the eurozone crisis, by posting its strongest growth since the financial crisis began.

Spanish GDP rose by 0.6% in the second quarter of 2014, its National Statistics Institute reported.

That’s stronger than the 0.5% expected, and means growth accelerated from the 0.4% growth in January-March.

Over the last year, Spanish GDP has risen by 1.2%.

Another welcome signal that the Spanish economy is recovering – hopefully it will drag down its record unemployment levels (currently 24.5%).

However, Spain is also being hit by the deflationary pressures in the eurozone.

New inflation figures, also just released, show that the consumer prices index fell by 0.3% annually in July.

That means that nominal GDP (growth plus inflation) remains weak, at just +0.3.

No major drama on Barclays’ early conference call.

Finance director Tushar Morzaria did confirm that US authorities have another year to assess whether its foreign exchange operations have broken the law (as Jill flagged up earlier).

Reuters sums it up:


Joshua Raymond of City Index is worried that Barclays investment bank suffered such a steep fall in profits, down almost 50% in the last six months.

He warns:

What will be troubling for some investors is not just the fact that investment banking continues to sap underlying numbers for the group as a whole, but the deterioration in the last quarter and the potential impact on the group’s full-year performance unless market activity picks up.

Barclays shares rise

Barclays shares have jumped 3% at the start of trading, putting it at the top of the FTSE 100 leaderboard.

City traders clearly aren’t worried that it has set aside another £900m to compensate PPI customers, or that profits at its investment bank halved.

There are some encouraging signs in today’s results.

For example, Barclays’ Personal and Corporate Banking division has cut its bad loans, thanks to “the improving UK economic environment”..

Buried in Barclays results statement is the news that the US Department of Justice has extended its “non-prosecution agreement” for another year.

That gives the DoJ another 12 months to decide whether Barclays foreign exchange operations have broken any US laws.

Several inquiries are underway into whether FX traders conspired to fix currency rates.

Barclays sets aside another £900m for PPI mis-selling

Britain’s PPI mis-selling scandal has taken another twist this morning.

Barclays, Britain’s third-biggest bank, has hiked its provision for compensating customers who were wrongly sold payment protection insurance protection by a futher £900m.

That pushes Barclays total PPI bill towards £5bn — a remarkable bill for selling insurance products which its customers simply didn’t need.

Not quite the image that CEO “St” Antony Jenkins is striving for.

The news comes as Barclays reports a 7% drop in underlying profits. Earnings were driven down by a weaker performance at from investment banking, where revenues slumped by 18% and profits almost halved.

Jenkins, who is trying to reshape Barclays and shrink the investment bank, says:

Performance in the Investment Bank was impacted by the repositioning underway as well as difficult trading conditions in the quarter, but it is where we expected it to be at this point.

US GDP awaited

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and the eurozone.

Has America’s economy bounced back from the shock of its winter slowdown? We’ll find out today (1.30pm) UK time, when the first estimate of US GDP for April-June is released.

Economists predict strong growth, of at least 0.7% to 0.8%, or 3% on an annualised basis. That would reverse the unexpected slump in January-March, when annualised GDP shrank by 2.9% as grim winter weather gripped America.

If that doesn’t happen, it will spark fresh concerns over the state of the global economy.

As Michael Hewson of CMC Markets explains:

For some time now we’ve heard all manner of speculation that the slowdown in the US economy seen in Q1 was an aberration, caused by the worst winter in living memory.

The slowdown in Q1, we were told, would be more than offset by a strong bounce back in Q2.

World financial markets will be watching Argentina nervously. It has until the end of today to reach an agreement with its holdout bondholders, or else default on the debt.

Talks have been taking place in New York in a final bid to cut a deal:

Last-ditch New York talks on Argentina debt

Investors will also be digesting the latest raft of sanctions imposed on Russia by the US and EU last night, targeting weapons, energy and finance.

Three large banks – VTB Bank OAO, Bank of Moscow and the Russian Agricultural Bank – have been cut off from the US economy.

Lots of corporate results today, led by Barclays, which is holding a conference call at 8am. A clutch of other companies, including ITV, Taylor Wimpey, Rightmove and Greggs, are also reporting.

And then tonight, the US Federal Reserve ends its monthly meeting — it’s likely to trim its bond-buying stimulus programme by another $10bn/month.

We’ll be tracking all the action through the day.


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In the trading room today: Will the Fed Boost or Weaken the USD? As the Federal Open Markets Committee’s two-day meeting gets underway, we examine its possible outcomes and ponder if the Fed could provide additional boost to the greenback or could reverse the U.S. dollar’s bullish momentum gained in recent weeks, we analyze the test of important support levels for the EUR/USD and the GBP/USD currency pairs, we note the drop of the NZD vs USD, we take a look at the rally in the USD/JPY pair, we highlight the market’s reaction to the U.K. Mortgage Approvals and the U.S. Pending Home Sales, we discuss new forecasts from Credit Agricole and Nomura Holdings, and prepare for the trading session ahead.

In the trading room today: All Eyes on the USD in the Week Ahead. With the U.S. Q2 GDP estimate and the Non-farm Payrolls on the horizon, we explain why these economic reports could prove crucial for the future trend direction of the USD and explore the outlook for the greenback against the EUR, the GBP and other currency majors,  we list the Top 10 spotlight economic events that will move the markets in the week ahead, we examine the consensus forecasts for the upcoming economic data, we analyze the latest developments in the EUR/USD currency pair, we take a look at the support area for the GBP/USD pair, we note the strengthening of the USD vs JPY, we highlight the market’s reaction to the German Ifo Index and the U.K. GDP, we discuss new forecasts from Mizuho Bank and Credit Agricole, and prepare for the trading session ahead.

Live coverage of the latest GDP data, showing that the UK economy is, at long last, larger than in 2008 as it grew by 0.8% in April-June quarter. But on a per capita basis, GDP is still below the peak. Service sector surged, while construction shrank…


Powered by Guardian.co.ukThis article titled “UK economy finally above pre-crisis peak, as GDP rises by 0.8% in Q2 – business live” was written by Graeme Wearden, for theguardian.com on Friday 25th July 2014 12.05 UTC

The first quarter of 2008 was also the time in which Northern Rock, stricken by the credit crunch, was formally nationalised by the Labour government.

Northern Rock was later sold to Virgin Money. And today, they’ve announced they are creating 200 new jobs this year, including 120 in the North East.

The announcement coincides with George Osborne’s trip to Newcastle today.


Here’s a video clip of George Osborne explaining how Britain hasn’t completed the task of recovering from the Great Recession.

Read the news story here

Rather than trudging back to 9.30am, new readers might prefer to read our news story on today’s growth figures:

GDP surpasses pre-recession high as economic growth hits 0.8%

Larry Elliott: Chancellor is right not to be smug

Our economics editor, Larry Elliott, says the chancellor is wise to resist crowing today (as I flagged up earlier, George Osborne tweeted that there’s still “a long way to go” to complete the recovery).

Larry writes:

For one thing, this has been the mother and father of a recession and it has taken far longer than Osborne expected for the economy to respond to the Bank of England’s cheap money medicine.

There have been four deep downturns since the second world war; two presided over by Labour governments, two by Conservative. After the first oil shock in the mid-1970s, it took 12 quarters for the economy to return finally to its pre-recession level of output; after the recession in Margaret Thatcher’s first term it took 16 quarters; after the recession following the Lawson boom of the late 1980s its took 10 quarters. This time it has taken 25 quarters.

The second reason it makes sense for Osborne not to crow too much is that in terms of output per head of population, the downturn is still not over. The population has risen since the economy went into recession in early 2008 and at the current rate it will be 2017 or 2018 before the losses in per capita GDP are made up.

More here: George Osborne is right not to be smug over GDP numbers


Unions are flagging up up that most people are not feeling the recovery in their pocket:

Wage growth, or rather the lack of it, is one of the clearest signs that Britain’s recovery isn’t feeding through to the workers.

Pay rises have been lagging behind inflation since the crisis began, and hit their lowest level since 2001 in the three months to May (at just +0.7%).

Today’s GDP report is only the first stab at assessing the UK economy’s performance in the second quarter of 2014.

It doesn’t actually contain any data from June at all — the Office for National Statistics just estimates how the various sectors performed, based on history and the data from April and May.

John Bulford, economic advisor to the EY ITEM Club, reckons the 0.8% growth reading could be revised up next month:

The disparity between official figures, which show manufacturing output growing by just 0.2% and construction contracting by 0.5%, and business survey data, which show both sectors roaring ahead, is glaring. With that in mind, it would not be a surprise to see the Q2 figures revised up in the next release in mid-August.”

Guess who had another ‘helpful suggestion’….


Ben Chu has pulled together another great chart, showing how Britain’s GDP per capita (economic size divided by the total population) has also lagged most of the G7 group of advanced economies since 2008.


Chart: How Britain lagged the G7 since 2008

Italy is the only member of the G7 to have recorded slower growth than the UK since the first quarter of 2008

That was the time when the credit crunch was transforming into the biggest financial crisis to grip the world since the Great Depression.

Ben Chu of the Independent has helpfully tweeted this chart to show it:

At which point, the Conservative team at the Treasury suggested he might like to rescale it to 2010 (when the coalition took power).

Better, but still not top of the class…

Guy Ellison at Investec Wealth & Investment, says Britain’s recovery has been “a long slog”:

The UK is the second to last member of the G7 group of economies to reach the milestone and took much longer to rebound than in past recessions.

Geraint Johnes, director at Lancaster University’s Work Foundation, has rubbished the notion that today’s growth figures are a triumph for George Osborne’s austerity programme.

After all, the chancellor did (sensibly) drop the idea of eliminating the deficit in this parliament after it became clear that he was spiralling off course.

Johnes says:

“What do the figures say about the effectiveness of austerity and the management of the economy? The Chancellor’s actions trump his rhetoric. Austerity was effectively abandoned a couple of years ago, and the economy has flourished – albeit in patches – since.

And next year’s growth is unlikely to match the “rather remarkable results” being achieved at present, Johnes adds.



Rob Wood, economist at Berenberg, agrees that growth was “not balanced this quarter”:

The service sector (+1.0%) was strong while manufacturing (+0.2%) and construction (-0.5%) were weak. The longer the recovery remains unbalanced the less sustainable it may seem to aim for growth continuing around these rates.

That being said, manufacturing and construction suffered from an usually weak May and could bounce back strongly in June and through Q3

Manufacturing data from other European countries was also weak in May, suggesting the global economy had a hiccup.

A lot of people are hammering home the fact that the UK’s recovery has been the slowest in living memory.

This tweet from RBS shows the tortoise-like nature of the rebound:

And the FT explains just how badly it compares it to previous recessions over the last 100 years:

Ed Balls: GDP per head won’t recover till 2017

Better late than never, George.

That broadly sums up Ed Balls’ response to the GDP data, who points out that America’s economy hit its pre-crisis peak back in 2011.

The shadow chancellor says:

“At long last our economy is back to the size it was before the global banking crisis – three years after the US reached the same point.

“But with GDP per head not set to recover for three more years and most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed.”

Balls adds that Labour measures, such as more free childcare and a 10p starting rate of tax, will make the recovery fairer. More here.

Jeremy Cook, chief economist at currency company World First, says the recovery is “engendered, sustainable and flourishing”.

“Once again, it was services that drove the economy onwards, rising by 1%. Construction slipped back in Q2, falling by 0.5% following a strong Q1 helped by home building and repair efforts to flooded properties in the west country.

“Industrial production rose 0.4%. The recession prompted a renewal of the phrase “Keep Calm and Carry On” and all in the UK will be hoping that this expansion does just that.”


Simon Baptist, of the Economist Intelligence Unit, points out that the recovery has been “notable for its extremely slow pace”:

Austerity in this parliament has been a drag on growth.

Markets needed to see a long term plan to big ticket items like pensions, healthcare and welfare spending; the government has done some of this for which it deserves credit, but growth now is in spite of austerity not because of it.

GDP reaction starts here

Ben Brettell, senior economist at Hargreaves Lansdown, warns that the UK economy “isn’t as strong as it looks”.

He also points out that GDP per person is still lagging (check out this chart)

While it has surpassed its pre-crisis peak in absolute terms, a larger population means GDP per capita is around 6% lower. The economy has been growing by adding jobs, but there is an underlying issue with productivity, and this is why we are not seeing any meaningful increase in wages.

Despite another upgraded growth forecast from the IMF I believe significant challenges lie ahead.

Don’t forget, GDP per capita is still below 2008 peak

I flagged this up earlier, but it really can’t be repeated too many times:

Britain’s GDP per person is nowhere near the level it reached before the recession.

The ONS hasn’t issued a new estimate today but, based on earlier data, GDP per capita is probably at least 5% smaller than in 2008.


The Liberal Democrats want their share of the credit, declaring that they have “cleared up Labour’s economic mess”.

Lib Dem Treasury Minister Danny Alexander says Britain has passed a major milestone today.

“The main reason that we stepped forward to form the coalition was to sort out Labour’s economic mess and rebuild a stronger economy and a fairer society for the future.

“By forming the coalition we gave the country a long term economic recovery plan based on Liberal Democrat values and policies and the stability to see it through.”

George Osborne: we’ve got a long way to go

Chancellor George Osborne is touring the North of England today – designed to show that the government takes regional regeneration seriously.

He’s tweeting from Newcastle:

Britain’s manufacturing sector didn’t enjoy a blowout quarter — its activity expanded by just 0.2% in the April-June quarter, down from 1.5% in January-March.

The key chart: GDP finally over pre-crisis peak

And here’s confirmation that the 0.8% growth in the last quarter was almost totally due to the service sector (which makes up around three-quarters of the economy)

Britain’s agriculture sector also shrank during the quarter, by 0.2%.

On an annual basis, the UK economy is 3.1% bigger than a year ago.

The construction sector contracted during the quarter – with its output shrinking by 0.5%.

Britain’s industrial sector grew by just 0.4% in the quarter, a slowdown compared to the 0.7% in Q1.

Britain’s service sector continues to drive the recovery.

It expanded by 1.0% between April and June, which is the strongest growth since the third quarter of 2012.

The Office for National Statistics confirms that the UK economy is now 0.2% larger than at the previous peak, in the first three months of 2008.

UK economy grew by 0.8% in second quarter of 2014

Here we go! The UK economy grew by 0.8% in the second quarter of this year.

That’s means Britain’s GDP is finally above the previous peak set in 2008.

Lots more detail and reaction to follow…

Ed Balls has rather pre-empted today’s growth figures, in an article in today’s Guardian.

In it, the shadow chancellor argues that there’s no cause for complacent celebrations, just because GDP has reached its pre-crisis levels (assuming it does….)

Not only is it two years later than the chancellor’s original plan said, and three years after the US reached the same point, it’s also the case that GDP per head won’t recover to where it was for around another three years – in other words, a lost decade for living standards.

Conservative complacency won’t help working people

Just over 20 minutes to wait until we learn how fast the UK economy grew in the second quarter of 2014.

Paul Hollingsworth of Capital Economics says it will be “another milestone for the recovery”, if GDP comes in at +0.8% as expected, 0.2% above the 2008 previous peak.

GDP per capita still lagging behind

There’s a very important reason to be cautious about today’s growth numbers, which explains why many people don’t feel the benefits of the recovery.

GDP per capita (ie, the amount of economic output divided by the number of people in Britain) is still more than 5% below the pre-crisis peak.

As the ONS said this month, “GDP per head has recovered relatively slowly since 2009″, and was 5.6%. This chart confirms it:

Tax campaigner Richard Murphy comments:

And that means almost everyone in this country is still worse off than they were in 2008. That’s nothing for the government to celebrate.

Lloyds close to Libor deal

RBS isn’t the only bank tackling “conduct and litigation issues”, of course.

Its UK rival, Lloyds Banking Group, has confirmed this morning that it is close to reaching a settlement over its role in Libor-rigging.

This is the scandal in which traders allegedly conspired to fix benchmark interest rates that underpin many financial markets. Lloyds is expected to pay a fine of £200-£300m.


Today’s GDP figures should also show that the UK economy has grown for the last six quarters — the longest sustained run of rising output since 2008.

RBS shares surge 12% after rushing out better-than-expected results

Royal Bank of Scotland has surprised the City by rushing out its results a week early, in the latest sign that conditions are improving in the UK economy.

RBS, which was rescued by the taxpayer after the great recession struck, has reported an unexpected rise in pre-tax profits, thanks to a fall in bad loans and a general improvement in economic conditions.

Shares surged by over 12% when trading began in London, even though CEO Ross McEwan cautioned that it still faces a number of “conduct and litigation issues”.

Here’s our full story:

RBS reports largest profits since bailout as share price soars

To hit its pre-crisis peak, UK GDP must have risen by at least 0.6% in the last quarter, I reckon.

Most economic data from April, May and June has suggested that growth remained quite strong, which is why economists expect GDP to have risen by 0.8% or 0.9%.

The slowest recovery since at least 1920

It’s wise to be cautious when economists talk about X or Y being the best or worst ‘on record’.

Reliable statistics don’t go back terribly far — for example, the central bankers faced with the Great Depression were hampered by limited knowledge about how their economies were faring*.

But it’s clear that this UK recovery has been the slowest in at least 100 years.

This graph from the NEISR thinktank (which includes their estimate for today’s GDP data) compares the last six recessions, going back to 1920.

* – the excellent Lords of Finance explains this well.

UK growth figures to show state of the recovery

Good morning.

After the longest downturn in recent UK economic history, has Britain’s economy finally returned to the levels before the 2008 financial crisis?

Economists think so, and we’ll find out for sure at 9.30am this morning when the Office for National Statistics issues its first estimate of UK growth for the second quarter of 2014.

The ONS is expected to report that GDP expanded by 0.8% or 0.9% between April and June. That would match, or exceed, the growth seen in the first three months of this year, showing that the UK recovery continues to outpace other advanced economies.

And with an election just 10 months away, the figures are eagerly awaited in both Westminster and the City.

Just yesterday, the International Monetary Fund upgraded its forecast for UK growth again – it now expects GDP to rise by a punchy 3.2% this year. Good news for George Osborne.

IMF predicts Britain’s GDP growth rate will surge to 3.2% by year end

But critics of the chancellor argue that Britain is enjoying another of those consumer-driven recoveries that have caused such trouble in the past.

So we’ll be scrutinising today’s data for evidence of whether the economy is really rebalancing, or not.

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In the trading room today: Is the NZD Really Vulnerable to a “Significant Fall”? Following the Reserve Bank of New Zealand interest rate announcement and warning of the possibility for a “significant fall” in the NZD, we take a close look at the Kiwi dollar and examine some of its vulnerabilities that could trigger further losses for the currency, we analyze the sell-off in the NZD/USD currency pair, we note the test of a support area for the GBP vs USD, we keep an eye on the weakness in the EUR/USD pair, we highlight the market’s reaction to the U.K. Retail Sales, the Euro-zone Composite PMI, and the U.S. Jobless Claims, we discuss new forecasts from ASB Bank and Westpac Banking Corp., and prepare for the trading session ahead.