Introduction: UK GDP revised down to 0%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s economy stagnated in the first three months of the new Labour government, and was also weaker than expected in the final quarter of the Conservatives’ tenure, new data this morning shows.
The Office for National Statistics has just revised down its estimate of GDP growth in the third-quarter of this year, to 0%, down from 0.1% previously expected. That shows the UK economy flatlined in July-September.
The latest GDP quarterly national accounts report, just released, also shows that real GDP per head fell by 0.2% in Quarter 3 2024, and is 0.2% lower compared with the same quarter a year ago.
On an output basis, the oNS says there was no growth in the services sector in the latest quarter, whilst a 0.7% increase in construction was offset by a 0.4% fall in production.
ONS director of economic statistics Liz McKeown explains:
“The economy was weaker in the 2nd and 3rd quarters of this year than our initial estimates suggested with bars and restaurants, legal firms and advertising, in particular, performing less well.
“The household saving ratio fell a little in the latest period, though remains relatively high by historic standards. Meanwhile real household disposable income per head showed no growth.”
The ONS has also revised down its estimate for growth in April-June to 0.4%, down from 0.5% growth estimated earlier.
We’ll be tracking more reaction to the state of the economy through the day, as the City winds down for Christmas:
Happy Monday all!
Economic events this week (GMT):
Mon: UK GDP
Tues: RBA Minutes
Wed: Christmas day – Markets closed and hours restricted + BoJ Ueda speech
Thurs: Boxing day – many markets closed and hours restricted
Fri: Tokyo CPIHave a festive week!
— IGSquawk (@IGSquawk) December 23, 2024
The agenda
-
7am GMT: UK GDP quarterly national accounts, UK: July to September 2024
-
1.30pm GMT: Chicago Fed National Activity Index
-
3pm GMT: CB report on US consumer confidence
Key events
The US stock market has opened with mixed trading.
Investors are juggle relief that a US governmen shutdown has been averted against concerns that interest rate cuts in 2025 may be rarer than hoped.
The Dow Jones industrial average has dropped by 0.55%, or 237 points, to 42,603 points. Supermarket giant Walmart are the top faller on the DJIA, down 3.3%, while chipmaker Nvidia are a rare riser, up 1%).
The broader S&P 500 index is down 0.16%, but the tech-focused Nasdaq index is 0.2% higher.
Demand for long-lasting US consumer goods weakened in November.
New orders for manufactured durable goods dropped by 1.1% last month, new data from the U.S. Census Bureau shows, more than wiping out a 0.8% increase in October.
The decline appears to be driven by weaker demand for transport equipment and defence kit. Excluding transportation, new orders decreased 0.1 percent, which may be a knock-on impact from the Boeing strike which ended in early November.
Durable goods orders were 0.3% lower when defence orders were stripped out.
GDP downgrade is ‘unfestive news’ for Starmer and Reeves
The UK faces a “pretty dreary economic picture” as the new year approaches, says Laith Khalaf, head of investment analysis at AJ Bell:
“The UK economy didn’t grow at all in the three months to September according to the second estimate of GDP growth released by the Office for National Statistics today. That’s down from the meagre 0.1% registered in the first estimate. Worse still, early estimates suggest GDP per capita actually shrank in Q3, to the tune of 0.2%.
“This is unfestive news for the chancellor and the prime minister, who have promised to get the UK growing again. Clearly the government can’t be expected to turn on the taps of the whole economy in its first three months, but the fact GDP has flatlined does outline the scale of the problem.
“It also comes as business groups have criticised Labour’s first Budget in which Rachel Reeves chose to increase National Insurance for employers, which businesses are understandably warning will cost jobs and put upward pressure on inflation.
Mabel Banfield-Nwachi
Morrisons shoppers have been unable to access loyalty card discounts, with some left unsure whether their Christmas orders will arrive on time after the supermarket chain was hit by IT problems.
The retailer apologised to customers for the “system issues” after many could not apply the lower More loyalty card prices at the till, adding that some click-and-collect orders had also been affected.
The problems mean More card customers who have Fivers coupons, which customers get when they have saved up 5,000 points, can only redeem them in store as they must be entered manually by a shop assistant.
“If More card prices are not registering, we will apply a 10% discount to the customer’s entire shop,” a Morrisons spokesperson said.
A ‘disastrous’ Christmas for retailers
With less than two shopping days until Christmas, it appears that the festive season has been cruel for retailers.
New data from retail technology firm Sensormatic show that footfall in UK stores last week was 11.4% lower than a year ago, despite a near-15% rise week-on-week.
Super Saturday appears to have disappointed too – football was only 4.1% higher than the previous week, and 0.9% up compared with the final Saturday before Christmas in 2023. That may mean hopes of a surge in spending have been dashed.
Diane Wehrle, CEO of Rendle Intelligence and Insights says:
“The disappointing results, which come on the same day that we have learnt that the economy failed to grow between July and September, clearly reflect the ongoing cost pressures faced by households following a prolonged period of very high inflation. It appears this Christmas has been disastrous for retail, and a bad omen for 2025.”
Chief Secretary to the Treasury Darren Jones has said today’s downgraded GDP report is a “disappointing set of economic statistics as we end 2024”.
He insists, though, that ministers are going to “fight every day to make sure that we improve the lives of working people across this country”.
Jones told broadcasters:
“This Labour Government is going into 2025 with absolute resolve to work with investors, wealth creators and workers across the country to stimulate economic growth and improve living standards for workers across the country.
“This is our number one mission as a Government, and we start from a disappointing set of economic statistics as we end 2024.”
Biden launches new US trade probe into legacy Chinese chips
Over in the US, the Biden administration has announced new trade investigation into Chinese-made “legacy” semiconductors.
The move that could lead to higher US tariffs on chips from China used in goods from autos to washing machines to telecoms gear.
The US Trade Representative’s office says there is evidence that China is seeking to dominate domestic and global markets in the semiconductor industry, and undertakes extensive anticompetitive and non-market means, including setting and pursuing market share targets, to achieve indigenization and self-sufficiency.
Ambassador Katherine Tai says:
“This investigation underscores the Biden-Harris Administration’s commitment to standing up for American workers and businesses, increasing the resilience of critical supply chains, and supporting the unparalleled investment being made in this industry.”
The “Section 301” probe will be handed over to Trump’s administration, when it succeeds the Biden White House in four weeks.
More details here.
Honda, Nissan and Mitsubishi confirm merger talks
Jasper Jolly
Honda, Nissan and Mitsubishi have confirmed they are in talks over a possible three-way merger as the Japanese companies struggle with falling sales and competition from Chinese brands.
The companies confirmed on Monday that Honda and Nissan had agreed to “start consideration towards a business integration through the establishment of a joint holding company”, and that Mitsubishi would also decide on joining by the end of January.
The merger would combine Japan’s second- and third-largest carmakers, and add the smaller Mitsubishi, in a defensive effort to join forces as the automotive industry goes through its biggest ever period of upheaval. It would create the world’s third-largest carmaker in terms of annual sales, behind only Japanese rival Toyota and Germany’s Volkswagen.
More here:
The UK economy’s failure to grow in the third quarter is the latest blow to a government already facing criticism from businesses, as Sam Miley, managing economist and forecasting lead a the CEBR thinktank explains:
“Downward revisions indicate that the UK economy was stagnant in Q3. This followed an initial estimate of a 0.1% quarterly expansion.
This data revision adds further evidence to the view that the UK economy is struggling for momentum and will come as a blow to the new Government, having made growth a policy priority. Cebr expects the UK economy to grow by just 0.9% this year, with a modest improvement to 1.3% projected for 2025.”
The news that the UK economy flatlined in the third quarter of this year has dampened the mood in the City this morning.
The FTSE 100 share index is up just 5 points in morning trading at 8089 points, a gain of 0.07%, having hit a one-month low on Friday.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:
‘’The FTSE 100 has continued on its losing streak, with a Santa rally proving elusive, while European indices are also in less cheery shade red.
There’s not much merriment around for the UK’s economic prospects as the latest assessment from the ONS paints a picture of stagnation. Instead of meagre growth of 0.1% the economy stood still between July and September, and that was before the Budget cast another chill, and caused output to shrink in October.
The long period of speculation prior to Rachael Reeves announcements is unlikely to have helped, given the rumour mill was running on overdrive. With growth flagging even before the hike in National Insurance contributions comes into effect, it’s likely to make some companies that bit more hesitant about hiking wages or going on recruitment sprees.
It is “very likely” the UK economy has contracted in the current quarter, warns Professor Costas Milas, of the University of Liverpool’s Management School.
He tells us:
Revised GDP data point to a possible contraction in 2024 Q4 as the economy’s growth has been revised down to 0.4% (from 0.5%) in 2024Q2 and also flatlined in 2024Q3 (from 0.1% previously).
This very loss of momentum over successive quarters suggests that the 0% growth predicted last week by the BoE’s policymakers is our “best case scenario”. Notice that the MPC will decide, again, on interest rates in early February 2025, that is, before having the full picture for the economy’s performance in 2024Q4.
It makes sense to cut interest rates at that point rather than being overtaken fully by adverse economic events.
UK was slowest G7 economy in Q3
Before the election, Labour said wanted the UK to have the highest sustained growth in the G7.
But… this mission has got off to a bad start. This morning’s GDP downgrade means the UK was the joint-slowest member of the G7 in the third quarter of the year, with no growth in July-September.
Here’s the latest growth estimates from other leading advanced economies, for comparison.
FYI, updated GDP figures confirm that the UK economy has suffered a Man City style collapse… 🙄
Growth in Q3 has been revised down from 0.1% to zero, taking the UK from joint top of the G7 league table in H1 – to bottom.
GDP per head fell 0.2%, with only Canada doing worse.
— Julian Jessop (@julianHjessop) December 23, 2024
💥UK economic picture turns gloomier – GDP flatlined in Q3 (from previous estimate of +0.1%), putting the UK join it bottom of G7 growth table.
Services output flat, production fell, but construction rose.
UK GDP in 2023 revised up to 0.4%, from a previous estimate of 0.3%. pic.twitter.com/UFPkXbrlOT
— Suren Thiru (@Suren_Thiru) December 23, 2024
Today’s GDP downgrade shows the UK economy has lost traction,, the economics team at Investec say.
In a research note festively titled “The grinch steals Q3 GDP growth”, Investec say this could lead to more rapid cuts to UK interest rates in 2025.
They explain:
The main point is the further indication of a loss of traction in the economy, after a buoyant first half of 2024.
This follows recent news that GDP shrank in both September and October and will probably leave the UK only just escaping a technical recession in Q3 and Q4. The better news is that it will make the [Bank of England’s] MPC more inclined to bring interest rates down early next year, especially as it was dismissive of last week’s strong earnings data for October.
While interest rate markets are currently pricing in between two and three 25bp cuts in the policy rate over next year, we stand by our view of four, which would take the level of the Bank rate down to 3.75%.
Labour have “killed, plucked and cooked the UK economic goose”
Andrew Griffith, shadow secretary of state for Business and Trade, has accused the government of “trash talking” the economy, making a recession “a distinct possibility.”
Labour have really killed, plucked and cooked the UK economic goose.
A summer of trash talking the economy, an autumn tax-hiking budget and now a winter of discontent with a recession a distinct possibility.
The Chancellor must urgently change course. pic.twitter.com/HUavpBhXZi
— Andrew Griffith MP (@griffitha) December 23, 2024
