The City View: Sluggish UK economic growth, and Heathrow flying high
Today Andy Silvester talks to City A.M.’s Economics and Markets reporter Jack Barnett.
They go through lacklustre UK economic growth figures and why the cost-of-living crisis will hinder said growth; the latest inflation figures; the global economic recovery; and economic uncertainty to come.
Andy also goes through the news: Heathrow has marked its highest number of passengers since the start of Covid-19; and Tesla CEO Elon Musk has turned down a spot on Twitter’s board.
Episode transcript (auto-generated)
Andy Silvester 0:08 Good afternoon and welcome to the City V podcast me Andy Sylvester editor here at City AM. In a minute I’ll be joined by Jack Arnett, our economics and markets correspondents talk through GDP figures and a week have economic data, which will start to outline the picture that central bankers and policymakers are starting to have to grapple with as we enter what is an almost unprecedented perfect storm of economic headwinds. Firstly, the corporate news and I’m going to start with some good news for once Heathrow has marked the highest number of passengers since the start of COVID 19. Passengers in March, bumped way ahead of where we were throughout the last two years and the airport’s there have been some 670 million UK terminal passengers in the period between January march to earning 20 to 200 million loan in March and that’s significantly higher than the year before Heathrow CEO John Holland K today saying it’s fantastic so the airport came back to life after two years, everyone at Heathrow is doing everything we can to make sure passengers get on the way smoothly and safely as possible. And that good news for Heathrow coming on the back of London City airports record figures last month to now Elon Musk the man behind Tesla and SpaceX has now turned down a spot on Twitter’s board after being revealed as the platform’s majority shareholder. New Twitter CEO Parag Agarwal confirmed this morning Elon has decided not to join our board. I believe this is for the best now Musk was due to step onto the board on Saturday. However, instead of taking out his new post, the billionaire instead asked his 81 million followers is Twitter dying, citing inactivity as chief concern after last week, voicing Twitter’s stance on freedom speech as his latest qualm with the platform, the eccentric entrepreneur nor Twitter should no reason for the rejection, the position. Indeed, he posted a smirking emoji with no other comment. If this is all very tiring for you, I find it equally time. But nonetheless, it is a big company and interesting people. So there we go. Why don’t we leave the corporate news there for now, because it’s all about the economics and today. Jack bring you in now, GDP figures this morning painting, I think probably what picture we expected to start being painted now as various sort of headwinds hit the economy. But nonetheless, nothing particularly cheering in the in the morning release.
Jack Barnett 2:19 No. So the headline growth figure slowed pretty markedly from point 8% in January 2.1%. In February, mainly driven by lots of activity in the test and trace programme and vaccination campaigns just easing from that huge surge in activity that we had as a result of the overcome variant. There was a bit of a bounce back in the services sector as people started to go back out to pubs and bars after restrictions. were set aside but that was more than offset by quite a sharp fall in activity in the construction sector. And that was actually driven by the fact that we had those those free pretty nasty sorts norms over the month. But I’ve been the sort of wider macro points to say is that this is this is looks to be the start of what most people were pencilling is a quite a protracted period of sluggish growth for the UK economy, mainly driven by inflation being a lot higher than what we were expecting it to be six months or so ago. And that is going to result in people being more squeezed people having less room to maintain spending and less they dip into those savings, which they’ve built up over the course of the pandemic. But as we know, it’s not evenly distributed across populations, I think what people were expecting is that we’ve got a severe cost of living squeeze, which is just going to hit people’s living standards, they’re then going to in turn, cut their spending and the economy is very heavily reliant on people spending money. And if that falls, then growth is likely gonna be a lot weaker than we expected. Andy Silvester 3:53 Yeah, which presents issues for Rishi Sunak as well. I mean, we’re seeing a Scotland of issues at the moment, some of them fair, some of them perhaps a little more bizarre. But when it comes to public finances and creating growth, obviously the tax revenues from growth, and later this week, we have more data, which will probably put all of the sort of funny looking at GDP figures, isn’t it? Because they are fundamentally backward looking. You’re always guessing how things were going, not guessing how things are going, but you’re sort of waiting for confirmation of how things are going well see, most people in the markets, most people like us are looking forward probably inflation, despite again, being a bit backward looking, probably going to give us more of a steal on what we might expect to see for the rest of the year. And we’ve got news by stateside tomorrow and then the UK on Wednesday. Jack Barnett 4:39 Yeah, so we’ve got obviously, on the shores, we’ve got fresh inflation figures on Wednesday, I’ve in the city is kind of pencilling in about 6.7% That’ll be up from 6.2% in February. That’d be the highest rate since March 1992. Across the pond, most people were expecting it’s a top eight bus then it was 7.9%. Before, that was the highest for decades. So the narrative is pretty much the same across each of the economies. And as you were saying they’re looking forward, inflation is not likely to stop at 6.7%. In the UK, I mean, most people were expecting it to go even higher. Some people were expecting it’s even top 10% in October. So that just speaks to the fact that this quite sharp cost of living squeezed is only going to get worse. Now, the other point to make is that Wednesday’s inflation figures is not going to be good reading for the Bank of England, obviously, they’ve been criticised for being quite slow for responding to inflation, the back end of last year when he started taking off. I think if you know, the figures come in at 6.7%. As we’ve said many times before, most of the time, inflation figures have surprised to the upside. So I imagine you’ll probably be above 6.7%, that is going to send some of the banks, the Bank of England quite jittery and given probably reinforced calls for them to hike rates at the next meeting in May, and to do more over this coming year as well. Andy Silvester 6:07 Yeah, I mean, we’ve talked at length about the dilemma that they’re facing between choking off growth, such as it is, versus controlling inflation. But it seems like the mood in the city has very much moved towards people wanting the bank to take their one mandate seriously, it’s always worth remembering. They don’t have a mandate for economic growth, they have a mandate to keep inflation at or around 2%. So we’ll wait and see what happens there. They’re also global headwinds, right, the return of COVID-19, while in the UK hasn’t really made a huge amount of impact except at places like Heathrow, as we heard earlier. But in places which have not moved fast on the vaccination programme, places like frankly, China, still pursuing a zero COVID policy, we’re starting to see those global headwinds increase again, you saw Chinese stocks beginning to be sold off this morning, which is followed sort of a week of people being quite nervous about it, that doesn’t improve the picture for the global economic recovery does it? Jack Barnett 7:08 No, and it goes back to this narrative that we had, which dominated most of the second half of last year. But we had these severe supply chain shocks, mainly originating from China, pursuing this zero COVID policy which resulted in you know, trade war has been gummed up and productivity levels reports plummeting, because people just had to shards or loads of people are off work. So it just led to a disruption in normal trade flows. Now, the the point to make about how it will likely impact the UK economy is that what will likely happen is that goods that we import from China or Southeast Asia will probably increase in price now that widen our trade deficit, which, you know, the figures today this morning, are already showing that our trade deficit is widening, as a result of higher energy prices, that tends to put downward pressure on the pound, which then actually results in even higher inflation because you have to spend more money to import goods. So again, it’s just, you know, the, the headwinds that your points into their feedback into this wider inflation narrative that we have running across the UK economy. At the moment, it looks as if we’re transitory going back to last year, it doesn’t look like it’s going to be transitory for the next next year or so. Andy Silvester 8:16 Yeah, no, that’s certainly clear. Jack we’ll leave it there. Thanks so much for joining us. That’s all from us at The City View podcast. It’s a it’s a week where I think an awful lot of economic data will flow out of, you know, the ONS or the US authorities. And all of it will fundamentally point to the fact that we are entering a period of just extraordinary almost historic economic confusion really is the only word I can think of we can’t really predict what’s going to happen from here on out nobody had war in Ukraine in February as as part of its as part of their for planning. So whatever happens, I think we know that life is still going to become a bit unpredictable for a while. Yeah, and that leaves central bankers with a hell of a problem. That’s all from us at The City View podcast, we’re gonna get back to putting together tomorrow’s newspaper as ever fully back around this time tomorrow.