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UK economy ‘idling’ as GDP growth hit by shortages


4.30pm: Blue chips close week in green

The FTSE 100 closed 4.73 points higher at 7,028.94.

8.15am: Market rises

The FTSE 100 was trading 16.5 points higher 7,040.73 as forecast, despite slower than expected GDP growth (see below).

8am: Toyota cuts production

Toyota is cutting its annual production target by 300,000 vehicles as a slowdown in output at COVID-19 hit parts factories in Vietnam and Malaysia added to the global shortage of chips.

The Japanese car maker now expects to build 9 million vehicles in the year to 31 March, rather than 9.3 million.

8am: GDP growth worse than expected

The UK economy flattened in July, as supply chain problems and the pingdemic brought growth to a near halt.

GDP rose by a much weaker than expected 0.1%, according to the Office for National Statistics reports, and a sharp slowdown on June’s 1% growth.

That leaves the UK economy still 2.1% below its pre-coronavirus pandemic level in February 2020.

There was a 2.5% fall in retail trade, only partially offset by a 72.5% growth in travel agency, tour operator and other related reservation services

Construction output fell by 1.6%, with firms reporting delays in the availability and sourcing of construction products.

Industrial output grew by 1.2% boosted by the return to production of an oil field which had been temporarily closed for planned maintenance.

AJ Bell financial analyst Danni Hewson tweeted: “The engine is definitely idling.”

She added: What was interesting to note was the decent uptick in vehicle manufacturing which was unexpected after dire warnings from the SMMT last month, but it does signal that at least one major supply chain hurdle might have been partially overcome and that chip shortage might be easing up.

“But it’s unlikely that signals the beginning of the end for supply chain issues; all evidence seems to suggest things will get worse before they get better, and many people expect this Christmas to be beset with rising prices and shortages.”

William Bain, head of trade policy at the British Chambers of Commerce, said the data points to the effects labour shortages, particularly among HGV drivers, are having on exports.

“We will be keeping a close eye on the next set of data, in October, to assess the impact this is having on food imports. 

“Overall, the figures remain concerning. Taken in conjunction with German trade data from earlier this week [Britain is on course to lose its status as one of Germany’s top 10 trading partners this year for the first time since 1950], the UK is clearly doing less trade with the EU than three years ago.

“SMEs and other businesses will want to see steps being taken by the UK Government and the EU to help improve this situation in the coming months.” 

Alpesh Paleja, CBI lead economist, said Labour shortages and supply chain disruption are likely to have taken the edge off growth. “Businesses hope the bulk of supply disruption will prove temporary, but firms are not confident that all shortages will fade any time soon. 

“To help ease these pressures, temporary, targeted interventions are needed to enable businesses to keep their doors open – for instance, placing HGV drivers on the Shortage Occupation List could make a real difference. Longer-term, both business and government must invest in reskilling and training, particularly in areas that support meeting future demand.”

Bridget Phillipson, Labour’s Shadow Chief Secretary to the Treasury, commenting on latest GDP figures, said: “People are working incredibly hard to build the recovery but Conservative complacency is holding our country back.

“The concerning figures today show that just as the UK economy ought to be getting back to normal, disruption to supply chains and other shortages mean our recovery is hitting the brakes.

“The Government has no plan, other than to plough ahead with a tax on jobs as well as a devastating cut to Universal Credit, taking money out of our high streets just when it is needed most.

Global markets

London equity traders were expected to give the FTSE 100 a lift as Asian markets rallied on the back of a call between US president Joe Biden and China’s President Xi.

The talks were seen as easing some of the tensions between the countries giving a fillip to markets which spent most of the week in downbeat mood.

The FTSE 100 closed 71 points lower last night at 7,024. The Dow Jones Industrial Average fell 0.43%, the S&P 500 lost 0.46%, and Nasdaq Composite dropped 0.25%.

China state TV maintained the change of mood by reporting that President Xi wants to improve trading relationships with his Asian neighbours and has even sent an olive branch letter to Australia by asking it to support China’s application to join a regional trade body, the CPTPP.

UK GDP figures were due later and tipped to be up 8.5% year-on-year in July.

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