Highlights 

• Central banks respond to ease economic impact of coronavirus
• UK economy does not grow in final quarter of 2019 – continuing trend of slowing growth
• Housing market activity bounces back in January on renewed consumer optimism

You can download the full market update here

UK GROWTH SLOWS FURTHER AS CORONAVIRUS THREATENS GLOBAL GROWTH PROSPECTS
 

Alongside the Federal Reserve cutting its policy rate by 50 basis points, the Bank of England has announced that measures are ready to be implemented to help support households and businesses as fear spreads over the impact of coronavirus. This comes as the OECD lowered its 2020 global growth forecast from 2.9% to 2.4% and warned that a longer lasting and more intensive coronavirus outbreak could slash growth to 1.5% in 2020.
 

Over the last year UK GDP growth has been weak and slowing, and did not grow at all in the final quarter of 2019. Over the whole of 2019 UK GDP growth was 1.4% -  a slight pickup from 2018, but still one of the slowest rates since the financial crisis of 2008 and 2009. Household consumption, the largest driver of growth in the economy increased by just 0.1% in Q4 2019, meaning in 2019 as a whole household consumption grew by a subdued 1.4%, its weakest annual growth rate since 2011.
 

 Wage growth fell in the final three months of 2019 to 2.9%, down from 3.2% in September to November. Although in real terms regular pay is now at its highest level since the series began in 2000 and is now finally £1 higher than the pre-economic downturn peak of £473 per week in March 2008. In January the annual consumer price index rate was 1.8%, an increase from 1.3% in December 2019. This rise largely reflects higher external price pressures from increased fuel prices and airfares falling by less than they did a year ago.
 

The labour market continues to show its resilience against a backdrop of slowing growth and Brexit uncertainties. In the three months to December 2019 the employment rate rose to 76.5%, the highest since records began in 1971, while the unemployment rate was unchanged at a near-record low of 3.8%. The number of vacancies also increased by 12,000 between November and January 2020, the first quarterly increase after eleven consecutive quarterly decreases. Growth in employment at the same time as weaker economic growth suggests labour productivity remains weak.
 

Many commentators and forecasters had been expecting growth to pick up in the first quarter of the year. Brexit-related uncertainty have dissipated somewhat, the political outlook is more certain than it was a few months ago, and consumer confidence appears to have picked up somewhat at the end of December. However, this may no longer materialise due to the global economic threat of coronavirus. The OECD’s forecast for UK GDP growth has been reduced from 1.0% to 0.8%. A cut in the Bank Rate was already widely expected due to the sluggish economic growth, but given recent actions by central banks, and the recent announcement by the Bank of England, a cut in the Bank Rate, or some other type of monetary stimulus could be imminent, even before the next MPC meeting on 26 March. Markets had been pricing in Bank Rate being 50bps lower in a year’s time, but the incoming Governor, Andrew Bailey, suggested to the Treasury Committee that a bridging finance scheme could provide more direct support than rate cuts. The FPC could also reduce the CCyB that it raised earlier this year. The new Chancellor, Rishi Sunak, is also due to hold his first Budget on 11 March, which could include some fiscal measures to offset the impact of coronavirus, particularly for small businesses.
 

You can download the full market update here which includes analysis of the mortgage and savings markets.