Economic Review – December 2019



The Bank of England (BoE) left interest rates unchanged following the latest meeting of the Monetary Policy Committee (MPC), although two members of the nine-strong committee once again voted for an immediate cut in rates.

At its latest meeting held on 18 December, the MPC voted to maintain its existing monetary policy stance and leave the bank rate on hold at 0.75%. However, while seven members adopted this ‘wait-and-see’ approach, for the second month running, two argued that current weakness in the economy warranted an immediate change in policy stance and voted for a rate reduction.

And the minutes of the meeting reflected this viewpoint, stating that the cost of borrowing may need to be reduced if global economic growth fails to recover or Brexit uncertainties persist. They did though also stress that, over the longer term, rates may still need to rise modestly if those economic risks fail to materialise.

Specifically, the minutes said: “If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation. Further ahead, provided these risks do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target.

The final MPC meeting of 2019 was current Governor Mark Carney’s penultimate rate-setting meeting. And the BoE has now announced details of Mr Carney’s successor, with current Financial Conduct Authority chief executive, Andrew Bailey, set to take over at the BoE helm. The veteran regulator and technocrat will begin his eight-year tenure on 16 March tasked with guiding the UK economy into a post-Brexit era.

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A sweeping Conservative victory in December’s election has provided Boris Johnson with a large majority that should pave the way for him to drive his vision of Brexit through parliament.

On 12 December, the Tories secured a decisive election victory, predominantly due to large swings from Labour to the Conservatives in leave-voting constituencies. This handed Mr Johnson an 80-seat House of Commons majority and a mandate to ‘get Brexit done’ without having to rely on support from Democratic Unionist Party MPs.

Unsurprisingly, Brexit featured heavily in the subsequent Queen’s Speech, which outlined the Prime Minister’s programme for government. Addressing Parliament on 19 December, the Queen said her government’s priority was to deliver Brexit on 31 January, with seven of the 30-plus bills announced relating to Brexit.

The following day, MPs backed Boris Johnson’s EU (Withdrawal Agreement) Bill by 358 votes to 234. The bill now faces further parliamentary scrutiny, with a three-day debate scheduled for 7-9 January, although it is expected to be passed in time to meet the 31 January Brexit deadline. A number of changes have been introduced to the bill including legally prohibiting the government from extending the transition period beyond the end of December 2020.

This means that the UK and EU will have less than 12 months to conclude talks on their future economic relationship and agree a trade deal. With trade deals typically taking many years to conclude, there is genuine scepticism that a comprehensive deal can be agreed within such a short timeframe. However, while the imposition of a Brexit process guillotine does raise the spectre of ‘no-deal’ next Christmas, some analysts have suggested it may be possible to secure agreement on a ‘bare bones’ deal within that timescale with other aspects then added to it over time.


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(Data compiled by TOMD)

As the decade drew to a close, leading global markets finished the year in positive territory, with some reaching record highs as trade concerns eased. The finer details of a phase 1 US-China trade deal and Britain’s negotiation of a free trade agreement with the EU are key focuses for investors in Q1 2020. Hopes of concrete progress on the trade front were bolstered between Christmas and the new year, when White House trade adviser Peter Navarro said the US and China looked likely to sign a deal early in 2020.

In the UK, receding concerns around the US-China trade situation, Brexit and the British political landscape, fuelled market gains in December. The Conservative victory in the general election provided investors with clarity over Britain’s likely path for leaving the EU. The FTSE 100 posted monthly gains for the ninth month in 2019, ending the year up 12.1%, the FTSE 250 closed the year up 25%. Wall Street’s main indices were in record-breaking territory after President Trump said that “new trade deals and more” meant that “the best is yet to come“. The Dow ended the year up over 22%. The Nikkei 225 ended the year up 18.2%, meanwhile the Eurostoxx 50 closed 2019 up 24.78%.

On the foreign exchanges, sterling closed the year at $1.32 against the US dollar. The euro closed at €1.18 against sterling and at $1.12 against the US dollar.

Brent crude closed the year trading at around $66 a barrel, a monthly gain of 7.31% and an annual gain of around 23%. The catalysts behind the annual rally were the easing trade tensions and the ongoing supply cuts from OPEC (Organization of the Petroleum Exporting Countries) and other major oil producers. Gold is trading at around $1,517 a troy ounce, a gain of 3.65% on the month. The weak dollar helped lift gold to its highest price since September. The metal posted its biggest yearly gain since 2010, rising over 18%.

(at 31/12/19)
(since 30/11/19)
   FTSE 100 7,542.44 2.67%
   FTSE 250 21,883.42 5.15%
   FTSE AIM 958.26 3.88%
   EURO STOXX 50 3,745.15 1.12%
   NASDAQ Composite 8,972.60 3.54%
   DOW JONES 28,538.44 1.74%
   NIKKEI 225 23,656.62 1.56%


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The latest batch of employment data released by the Office for National Statistics (ONS) shows that the UK labour market continues to confound economists with the overall employment rate rising to another record high.

Previously-released statistics had suggested that the economic slowdown had begun to impact on the UK labour market. And the consensus forecast in a Reuters poll of economists was that the latest figures would reveal a drop of around 10,000 in the overall number of people in employment.

However, statistics from the recently-released Labour Force Survey defied these predictions and showed that a net 24,000 jobs were created between August–October 2019. As a result, the employment rate (the proportion of 16–64-year-olds in paid work) rose to 76.2%, the highest figure since comparable records began in 1971.

The data also showed that the total number of people unemployed fell by 13,000 during the three months to October. This left the total unemployment rate at 3.8%, its lowest level since the three months to January 1975.

While the latest statistics do therefore show that the labour market remains in relatively robust health, there are still concerns that the current figures may ultimately prove to be a high-water mark . Indeed, the number of vacancies continues to decline, with an estimated 794,000 recorded in the three months to November 2019, 20,000 fewer than the previous quarter and 59,000 fewer than a year earlier.

Commenting on the figures, ONS head of labour market statistics, David Freeman said: “While the estimate of the employment rate nudged up in the most recent quarter, the longer-term picture has seen it broadly flat over the last few quarters. Vacancies have fallen for 10 months in a row and are now below 800,000 for the first time in over two years.


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Official retail sales figures show that UK consumers have been keeping a tight rein on spending in the face of ongoing political and economic uncertainties.

The latest set of statistics released by ONS revealed that retail sales volumes fell by 0.6% during November with all main sectors, apart from food stores, seeing a drop in sales. This was the fourth month in a row where the data failed to show any monthly growth, the longest such run since at least 1996.

Across the three months to November as a whole, which smooths out monthly volatility, sales decreased by 0.4% when compared with the previous three-month period. The figures also revealed a sharp slowdown in the annualised rate, with year-on-year sales growth of 1.0% in November down from 3.1% in October and the weakest annual rate of growth since April 2018.

The data used for the November statistics was collected during the four-week period from 27 October to 23 November and therefore excluded Black Friday sales promotions which centred on 29 November. Although ONS said it was confident its seasonal adjustment process accounted for this, some analysts have expressed concerns that the timing of Black Friday may, to some extent, have distorted the data.

Indeed, figures released by Barclaycard do suggest that Black Friday was the one relatively bright spot on an otherwise gloomy retail landscape, with sales volumes between 25 November and 2 December up 7.1% in comparison to 2018. However, even if ONS data ultimately reveals a statistical rebound in December, retail sales volumes are still unlikely to post any growth across the final quarter of last year. And that would pretty much cap an annus horribilis for the retail sector.


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It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.

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Official employment statistics suggest that the UK jobs market may have started to cool in recent months with the total number of people in work falling and the level of unemployment rising.

Although economic growth in the UK has for some time been below historic norms, the labour market has remained remarkably strong and provided a distinct silver lining for the economy over the past couple of years. However, the latest data suggests there are signs that the jobs market may now be cooling.

Statistics from the latest Labour Force Survey revealed that the total number of people in work fell by 56,000 in the June-to-August period. As a result, the overall employment rate (the proportion of 16 to 64-year-olds in work) fell to 75.9%, 0.2 percentage points lower than in the previous three-month period.

In addition, the total number of people unemployed increased by 22,000 to 1.31 million in the three months to August. This resulted in the overall unemployment rate rising to 3.9%, an increase of 0.1 percentage points compared to the previous quarter.

While the unemployment rate is still close to its lowest level in over 40 years and employment remains around historic highs, the rise in unemployment and drop in employment did come as something of a surprise to economists. ONS also reported that vacancies had fallen to their lowest level since September–November 2017 and admitted that the latest set of statistics did suggest the labour market is showing signs of slowing.

Commenting on the figures, ONS deputy head of labour market, Matt Hughes said: “The employment rate is still rising year-onyear, but this growth has cooled noticeably in recent months. Among the under-25s, the employment rate has actually started to fall on the year.”

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(Data compiled by TOMD)

At the end of October, talk of renewed trouble in USChina trade negotiations cast doubt on the possibility of a long-term trade deal. The news knocked sentiment recently lifted by growing optimism the Phase One deal would be concluded in November.

In the UK, at the end of the month, markets braced for a wide array of Brexit possibilities after parliament approved a December election. October 31 marked the first full day of campaigning for Boris Johnson and his rivals. The more domestically focused midcap index closed marginally up at month end, while the large cap index lost 2.16% in October.

In the US, investors continued to digest the Federal Reserve’s latest interest rate cut and commentary, as well as a host of major corporate quarterly results as earnings season rolled on. The NASDAQ Composite was buoyed by results from Apple and Facebook, the Dow Jones finished marginally up (0.48%).

On the foreign exchanges, sterling closed the month at $1.29 against the US dollar. The euro closed at €1.16 against sterling and at $1.11 against the US dollar.

Gold is currently trading at around $1,512.46 a troy ounce, a gain of 2.74% on the month, as trade woes brought the precious metal back in favour. OPEC (Organization of the Petroleum Exporting Countries) oil output bounced in October from an eight-year low as a rapid recovery in Saudi Arabian production offset losses in Ecuador and voluntary curbs under a supply pact. Brent crude is currently trading at around $60.21 a barrel, a loss of 0.94% on the month.

(at 31/10/19)
(since 30/09/19)
   FTSE 100 7,248.38 2.16%
   FTSE 250 20,021.50 0.43%
   FTSE AIM 889.54 1.90%
   EURO STOXX 50 3,604.41 1.02%
   NASDAQ Composite 8,292.36 3.66%
   DOW JONES 27,046.23 0.48%
   NIKKEI 225 22,927.04 5.38%


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The latest set of retail sales statistics suggest consumers have become more cautious about their spending in recent months despite the relatively strong growth in real wages witnessed over the past year.

Official data published by ONS revealed that retail sales volumes were flat in September when compared to the previous month, following a 0.3% decline during August. And, while moderate growth in sales was recorded across the third quarter as a whole, the annual pace of expansion did fall to 3.1%, the weakest rate of growth since late 2018.

ONS statisticians said that some retailers had suggested unusually rainy weather had a negative impact on high street shopping during September and this contributed to sales at department stores continuing their downward trend. In contrast, sales at food shops bounced back following a couple of weak months.

Signs that consumers may be turning more cautious will clearly be a key area of concern for the UK economy, as consumer spending has been the principal driver of growth over the past couple of years. Retail surveys conducted by the Confederation of British Industry and British Retail Consortium continue to paint a relatively bleak picture of conditions in the retail sector, although each survey’s findings have so far proved to be much worse than subsequent official data has shown.

However, the lacklustre nature of the latest ONS retail sales figures may suggest that political uncertainty is starting to weigh more heavily on consumers and testing the resilience of UK shoppers. While the recent strong growth in real wages can be expected to continue underpinning consumer spending to some extent, the latest data will certainly add to concerns that confidence amongst the household sector may now be waning.

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A study conducted by the National Institute of Economic and Social Research (NIESR) suggests the Brexit deal negotiated by Boris Johnson will ultimately leave the UK £70bn worse off than if the country had retained its EU membership.

The analysis by the UK’s oldest economic research institute estimates that the economy will be 3.5% smaller in 10 years’ time if the UK leaves the EU with the Prime Minister’s deal. While this is a better potential outcome than leaving with no deal at all – which NIESR estimates would see the economy shrink by 5.6% – it would be slightly worse than leaving under the terms previously negotiated by Theresa May.

Mr Johnson’s Brexit plan centres on much looser economic ties with the EU, and the independent forecaster’s modelling suggests the subsequent imposition of customs and regulatory barriers would hinder trade with the continent. Its analysis suggests this would leave all regions of the UK worse off than if the country had remained within the EU.

The Treasury has so far resisted calls to produce its own assessment of the economic impact of the new Brexit deal. However, a Treasury spokesperson did question the NIESR figures, suggesting the government plans a ‘more ambitious’ free trade agreement with the EU than assumed in the institute’s economic model.

Whether the UK does ultimately leave under the terms agreed by the Prime Minister remains to be seen, as the Brexit process is once more in limbo while the political parties fight out a General Election scheduled for 12 December. With the EU agreeing to a further extension until 31 January, the final outcome of the Brexit saga would now appear to depend upon the make-up of the House of Commons when the newly elected MPs take up their seats in around six weeks’ time.

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It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.