Economy

They also pumped a record $177 billion into U.S. Treasuries this year, though on a weekly basis the U.S. government bonds are in their third weekly outflow, the longest streak since February 2021.Outflows were seen across the board in the week to Wednesday when investors pulled $26.1 billion out of cash, in the form of money market funds, $21.3 billion from stocks, $2.1 billion from bonds and $300 million in gold, the report found.Investors shed stocks at the highest weekly rate since December 2022, and recorded their largest outflow from tech stocks in 15 weeks of $700 million.Corporate debt was one of the few asset classes that saw inflows in the latest week, with investment grade credit recording $400 million in inflows and high-yield logging $1.2 billion, the report showed. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK economy shrank slightly in the third quarter, according to revised figures that highlight the country’s struggle to shake off its low-growth performance and raise the risk of a technical recession.The data was published at the end of a year in which Prime Minister Rishi Sunak promised to “grow the economy”. Of his five pledges in January, only a vow to halve inflation has so far been met.The Office for National Statistics said on Friday that gross domestic product fell by 0.1 per cent in the three months to September, a downward revision from previous estimates of zero growth.The economy flatlined in the second quarter — lower than its earlier estimate of a 0.2 per cent increase.The weak performance will further raise pressure on the Bank of England to start easing monetary policy, especially with headline inflation now at 3.9 per cent, the lowest since September 2021.The UK economy is stuck in a lacklustre state as it struggles with high borrowing costs and the legacy of the worst inflationary upsurge for a generation.While the prospect of further falls in inflation in 2024 could alleviate some of the pressure on households, economists still expect weak investment and low productivity growth to drag on the country’s performance. Output fell another 0.3 per cent in October compared with September, according to official figures released earlier this month, although a separate report on Friday suggested there has been a 1.3 per cent jump in retail sales in November ahead of the key Christmas shopping period. Further declines in overall activity would increase concerns that the UK could be heading into a technical recession, with two consecutive quarters of falling GDP.“The national accounts release indicated an economy which is progressing slower than was first reported, making a winter recession far more likely,” said Ellie Henderson, an economist at Investec. The figures put UK output at 1.4 per cent above its pre-pandemic level, meaning the country has lagged behind all its G7 partners since the final quarter of 2019, with the exception of Germany, with just 0.3 per cent growth. The US had been the strongest performer of the group of advanced economies over the period, the ONS said, with GDP up 7.4 per cent compared with the final quarter of 2019.Bank of England projections released in November forecast near-zero growth through next year, even as the worst of the recent bout of inflation subsides. The third-quarter GDP figures were dragged lower by weak business investment and personal spending numbers, with real household expenditure sinking 0.5 per cent and the savings ratio going up. Business investment dropped 3.2 per cent, slightly less than previously estimated. The ONS reported a 0.2 per cent fall in output from the services sector in the three months to September, which offset a 0.4 per cent rise in construction output and slightly higher production output.Chancellor Jeremy Hunt played down the tepid numbers, saying Britain’s medium-term outlook was “far more optimistic than these numbers suggest”. He added: “We’ve seen inflation fall again this week, and the [Office for Budget Responsibility] expects the measures in the Autumn Statement, including the largest business tax cut in modern British history and tax cuts for 29mn working people, will deliver the largest boost to potential growth on record.”But Labour’s Rachel Reeves, shadow chancellor, said: “Rishi Sunak is a prime minister whose legacy is one of failure. He failed to beat Liz Truss, he failed to cut waiting lists, he failed to stop the boats and now he has failed to grow the economy.”In January Sunak made five pledges: to halve inflation, grow the economy, cut debt, stop the boats, and cut hospital waiting lists, but only the first has been achieved.This week the prime minister was reprimanded by the UK Statistics Authority for claiming “debt is falling” when in fact national debt as a share of national income is rising. Hospital waiting lists have risen since January while small boats crossings have continued in 2023, albeit they are down by about one-third. Sunak is planning a speech next month to set out his priorities for 2024, which he has confirmed will be an election year.In an interview with the Financial Times this week, Hunt said the outlook for 2024 was improving and said the country needed to “throw off our pessimism and declinism about the UK economy”. Hunt also raised the prospect of the BoE cutting interest rates. More

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The U.K. is edging closer to a technical recession, after revised figures showed the economy shrank in the previous quarter.
U.K. gross domestic product (GDP) fell by 0.1% between July and September, in a downward revision from the earlier estimate of flat growth, according to the Office for National Statistics.
The data could put further pressure on the Bank of England to cut interest rates sooner than planned in a bid to shore up a weaker economy.

People shopping on Oxford Street in London. Picture date: Thursday December 29, 2022. (Photo by James Manning/PA Images via Getty Images)
James Manning – Pa Images | Pa Images | Getty Images

LONDON — The U.K. is edging closer to recession after revised figures showed the economy shrank in the previous quarter.
U.K. gross domestic product (GDP) fell by 0.1% between July and September, a downward revision from the earlier estimate of flat growth, according to new data released Friday by the Office for National Statistics.

There was also zero growth in the prior three months, the new figures showed, down from the 0.2% growth previously calculated.
Data due out in February will show whether the U.K. has entered a technical recession — defined as when the economy shrinks for two consecutive quarters.
Responding to the revisions Friday, Finance Minister Jeremy Hunt insisted that the “medium-term outlook for the U.K. is far more optimistic than these numbers suggest.”

However, analysts said it shows that the U.K. has so far just “scraped by” without a recession.
“Growth is weakening and interest rates are really beginning to bite and while a recession has just been avoided to date, there is no guarantee one will be avoided in 2024,” Richard Carter, head of fixed interest research at Quilter Cheviot, said in a note.

“Inflation has eased more than anticipated and interest rate predictions are suggesting more easing than originally thought in 2024, but the damage may already have been done. Certainly, Rishi Sunak’s pledge to grow the economy is now severely in doubt,” he said.
That could put further pressure on the Bank of England to cut interest rates sooner than planned in a bid to shore up a weaker economy.
Better-than-expected data released Wednesday showed that inflation hit 3.9% in November, raising speculation that the central bank could cut rates in the spring.
Prime Minister Rishi Sunak has made growing the economy one of his key pledges this year. Downing Street said it will be met if GDP increases in the three months to December versus the previous quarter.
A near-term drop in interest rates would be a win for Sunak’s government, as the U.K. enters an election year.
Still, the BOE’s governor Andrew Bailey has insisted that rates may need to remain “higher for longer” after holding them steady at 5.25% at the final policy meeting of the year. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.British retail sales rose far more than expected in November and at their fastest monthly pace since the start of 2023, suggesting the sector “turned a corner” with help from Black Friday discounts ahead of the key Christmas period. The quantity of goods bought in Great Britain grew 1.3 per cent between October and November, the Office for National Statistics said on Friday, after two months of no growth or contraction. The reading outstripped the 0.4 per cent increase forecast by economists in a Reuters poll, and marked the fastest month-on-month rise since January. Friday’s retail sales figures are the first official economic data released for November, providing an early indication of the performance of the consumer sector in the run-up to what is traditionally the busiest season for shops. The strong rise last month suggests some consumer resilience against high prices and borrowing costs helped by store discounts, easing inflation and improving consumer confidence. It also points to some improvements in the consumer sector after household spending was the main driver of the contraction in the UK economy in the three months to September, according to ONS revisions also published on Friday. Asif Aziz, retail director at mobile network EE, said that “despite a slow start”, the retail sector had “turned a corner” in November. Boosted by lower price growth and discounts offered as part of the Black Friday shopping event, “consumer confidence has bounced back just in time for the busy holiday shopping season”, he added. Inflation fell to 3.9 per cent in November from 4.6 per cent in October, a bigger than expected drop, official data showed on Wednesday. Meanwhile, research company GfK found that consumer confidence rose to a three-month high, and for the second consecutive month, in December. Martin Beck, chief economic adviser to the EY Item Club, a consultancy, said: “November’s retail performance offers some hope that the economy will avoid another decline in gross domestic product in Q4 and a technical recession.”However, George Moran, economist at the bank Nomura, said that while the data for November suggested some improvement in consumer activity, he expected “December to be weaker to compensate for the strong growth in November”. Darren Morgan, ONS director of economic statistics, attributed the strong growth in retail sales to “heavy Black Friday discounting”.He said household goods retailers, clothing shops and department stores all reported robust sales, with stores selling computers, sports equipment, toys and cosmetics benefiting in particular from promotions. Supermarket sales notched up, but Morgan said specialist food and drinks stores registered the best November because “customers [were] stocking up early for Christmas and spending more than we have traditionally seen at this time of year”,Sales volumes were broadly unchanged from November last year even as shoppers spent 3.8 per cent more, underscoring the impact of high prices on household finances.Some economists said they expected rising real wages, the cut to national insurance contributions announced in the Autumn Statement and easing mortgage rates to bolster spending next year. Gabriella Dickens, economist at the consultancy Pantheon Macroeconomics, said: “We expect households’ real expenditure to rise by about 1.2 per cent next year, with retail sales following a similar trend.” More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The chief executive of Schaeffler, one of Germany’s top suppliers to the car industry, has warned that “unease and nervousness” sparked by Berlin’s recent withdrawal of funding for climate-related projects has spread beyond the country.Klaus Rosenfeld, who took family-controlled Schaeffler public in 2015, said: “International customers are asking us: ‘What is wrong with [Germany]? Why is this happening?’” Berlin this month agreed painful cuts to promised support for industry decarbonisation. This followed a landmark court ruling that blocked a move to transfer €60bn of funds originally earmarked for the Covid-19 pandemic to projects designed to modernise the German economy and fight climate change.The shock decision came at the end of a tumultuous year for the export-reliant economy, which has grappled with sluggish industrial output and lower investment amid soaring costs, high interest rates and lagging global demand for its cars, chemicals and machines.Referring to the slowdown in German industry, Rosenfeld, head of the Bavarian maker of bearings and car parts that employs just over 84,000 people, said it appeared “something is stuck” in Europe’s largest economy.“Don’t forget, at least in Europe, we are the machine,” he warned. “If that machine is not running, or not running smoothly, others are impacted as well.”As part of the cuts, the government last week abruptly ended a subsidy programme for electric vehicles a year early, despite sluggish sales. Volkswagen, the world’s second-largest carmaker, has already reduced shifts for workers making EVs this year, citing slowing demand.Suppliers such as Schaeffler — along with rivals Bosch, Continental and Vitesco — are uniquely exposed to the German carmakers’ efforts to ramp up sales of electric vehicles. Together, they have warned of more than tens of thousands of job cuts in recent years, as they invest in new technologies for electric cars.No family is more exposed to the car suppliers’ race to transition than that of Maria-Elisabeth Schaeffler and her son Georg, who chairs the Schaeffler company’s supervisory board. The family owns 46 per cent of tyremaker Continental, and has through its eponymous company agreed to pay €3.8bn in cash for Vitesco, a specialist in electric car parts.Schaeffler’s offer for Vitesco, for which a large-enough proportion of investors have now tendered their shares, initially ruffled feathers, with minority shareholder Greenlight Capital last month warning peers “not to give it up . . . to competitors who have missed the boat”.Rosenfeld said “the resistance” to the takeover was now “more or less gone”. He has previously argued that the merger between Schaeffler and Vitesco would lead to synergies worth €600mn a year by 2029. Cost efficiency, Rosenfeld said, would become even more important in the coming years as Chinese electric vehicle markers such as BYD, Nio and Xpeng ramp up their push for market share in Europe.“The competitive pressure at the moment is significant,” he said. “If you make the wrong decisions or go in the wrong direction, it can be costly.” More