ECONOMIC OUTLOOK
BRITISH banks all passed the Bank of England stress test for the first time, and were deemed resilient enough to withstand a disorderly Brexit, although they must put more money aside in reserves in case of an economic downturn.
The OECD issued a gloomy forecast on Tuesday, saying UK growth would worsen over the next two years, falling to just 1.1% in 2019. It said the major concerns were poor productivity, rising inflation and rising consumer debt.
The Government published its industrial strategy on Monday, seeking to tackle low productivity and boost competitiveness. The strategy includes “sector deals” in AI, automotive, construction and life sciences, where the Government will collaborate with the private sector.
It follows last week’s Budget, which was accompanied by a big downgrade in the outlook for the UK economy. The OBR reduced its projection for GDP growth in 2017 from 2% to 1.5% and forecast growth will slow to 1.3% in 2019-20.
The cut in stamp duty for firsttime buyers was the headline-grabbing Budget announcement, but critics said the move will push up prices, with the OBR predicting it would lead to only an additional 3,500 purchases a year.
The Chancellor also announced measures aimed at increasing the number of homes built to 300,000 a year by the mid-2020s. However, the Resolution Foundation thinktank warned that, based on the Budget projections, average earnings would not return to their 2008 peak until 2025 in real terms.
Public sector borrowing increased to £8bn in October, higher than forecast. GDP in the third quarter grew by 0.4%, according to the ONS’ second estimate – which was in line with its preliminary estimate. Consumer spending was the biggest driver, rising by 0.6%, while business investment rose by just 0.2%.
Retailers have had a good November, according to the latest CBI monthly survey. Almost 40% of respondents said sales volumes have been higher than last November, with a similar proportion optimistic that volumes would pick up again in December. Only 13% said sales were down, with even fewer expecting a drop in December.
Price growth was also strong. Three-quarters of respondents said they had seen average selling prices increase over the past 12 months – the most widespread increase reported since 1991.
Households withdrew cash from their tax-free savings accounts at the fastest rate on record in October. Data from UK Finance suggests households have been saving less and borrowing more to maintain spending in the face of rising prices and falling real wages.
The total amount held in cash ISA accounts fell by £1.5bn, the sixth straight month of declines and the biggest monthly withdrawal on record.
Unsecured borrowing also continued to rise, albeit at a slower rate than the previous month. Borrowing on credit cards at the largest high-street banks rose 5.1% year on year, down from 5.5% in September.