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The UK economy shrank 0.1% between April and June

   News / 12 Aug 2022

Published: 12 August 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight

The UK economy shrank 0.1% between April and June, official figures from the Office for National Statistics (ONS) show. Commenting on the contraction, the ONS said the biggest contributor to the decline was from "human health and social work activities" as Covid test and trace and vaccination programmes were wound down. However, it said areas such as tourism, bars and entertainment showed strong growth. The ONS also announced that the economy shrank by 0.6% in June due to the extra bank holiday to celebrate the Queen's Platinum Jubilee. The Bank of England has forecast the UK will fall into recession - defined as the economy getting smaller for two consecutive three-month periods - towards the end of this year and the downturn will last for the entirety of next year. The economy grew 0.8% In the first three months of this year.
Nine train companies will be disrupted by strike action tomorrow. 6,500 members of train drivers’ union Aslef are walking out in a row over pay. Train operators including Southeastern, CrossCountry, London Northwestern Railway and West Midlands Railway will run no services at all tomorrow. Great Western Railway has said "an extremely limited service" will operate, but only between Bristol Temple Meads and London Paddington, Reading and Oxford, and Reading and Basingstoke. Avanti West Coast has told passengers most of its network will have no services, and is advising them not to travel. Hull Trains will only run one service to and from London King's Cross. LNER said it will only run an extremely limited timetable, with one return train from Leeds to London train all day, and one train every two hours in both directions between Edinburgh and London. Greater Anglia has told passengers to avoid travelling on the Stansted Express because it will be heavily reduced service, with no direct trains. There will also be no direct Stansted Express trains on Sunday. The London Underground is also expected to be affected. Transport for London has also advised passengers there will be no service on the entire London Overground network, which is operated by Arriva Rail London, whose drivers are part of the strike. The Rail Delivery Group, which represents train operators, has said passengers with tickets on the strike day can use their ticket either on the day before, or up to and including Tuesday 16 August.
Around 5% of businesses with 250 or more employees have offered a one-off cost-of-living payment to their workers in the last three months, the Office for National Statistics' Business Insights report says. Among smaller firms, 1% have made such payments. The support comes despite many businesses struggling with their own rising costs, the ONS says, with 27% saying their main concern is inflation, and 20% saying it is the cost of energy.
The government is considering a plan to provide more help to energy-intensive industries in the face of soaring electricity prices, the BBC reports. Launching a consultation on the matter, Business Secretary Kwasi Kwartengsaid it was "essential" to explore ways of further cutting production costs as "British manufacturers are the lifeblood of our economy and central to our plans to overcome this period of economic uncertainty". The Energy Intensive Industries Exemption Scheme already grants energy-intensive sectors such as the steel, paper, glass, ceramics, and cement industries 85% relief on a range of environmental and policy levies added to electricity bills. The new proposals is that such firms would be 100% exempt from those additional costs. Director-general of UK Steel Gareth Stace welcomed the consultation, saying it should provide "some much-needed relief in the face of extremely challenging circumstances". The Department for Business, Energy and Industrial Strategy (Beis) said extending support to industry in this way would help around 300 businesses supporting 60,000 jobs in the UK's "industrial heartlands". Given that UK industrial electricity prices are higher than those of other countries, including in Europe, investment, competition and the commercial viability of UK firms could be hampered if no action were taken, and they may relocate overseas, Beis added.
Meanwhile, shares in FTSE 250 renewable energy generator Drax tumbled almost 5% yesterday after Business Secretary Kwasi Kwarteng said the company's imports of US-made wood pellets to be burnt for energy wasn't sustainable. The Financial Times reported that Kwarteng had told a group of cross-party backbench MPs who raised concerns that it "doesn't make sense". The Department for Business, Energy and Industrial Strategy had discussed biomass with industry he said, but "we haven't actually questioned some of the premises" of the sustainability of pellets. He added that shipping pellets from Louisiana - one of Drax's sourcing regions in the US - has "a huge cost financially and environmentally". The FT said allies of Kwarteng confirmed he had raised concerns about Drax's use of pellets imported from the US, but that he remained fully supportive of the company and the biomass sector. The government has spent millions subsidising the burning of pellets in Drax's Yorkshire facility over the past decade and the fuel features prominently in the UK's net zero strategy.
Also falling down the FTSE yesterday was British pharma GlaxoSmithKline(GSK). Shares plummeted more than 10%, because of concerns about legal proceedings related to Glaxo's former heartburn drug Zantac. The US Food and Drug Administration (FDA) ordered GSK to take Zantac off the market in 2019 amid worries about the levels of contaminant N-nitrosodimethylamine found in the drug, which has been linked to an increased risk of cancer. GSK said this morning that it has been named as a defendant in around 3,000 filed personal injury cases in the US, Canada and Israel related to the substance, and that US litigation is due to begin later this month. The company said that both the FDA and the European Medicines Agency have concluded there is no evidence of a causal association between ranitidine therapy (marketed as Zantac) and the development of cancer, and that plaintiff litigation is "inconsistent with the scientific consensus".
The TUC is asking the government to intervene to reduce energy bills, saying the latest predictions that they will hit £4,200 annually, on average, means they will cost more than two months’ average take-home pay in 2023. The union body wants minsters to stop the October energy price cap increase, bringing forward the annual increase in the national minimum wage from next April to October, and fund pay rises for public sector workers that keep up with inflation. TUC general secretary Frances O’Grady said: “No one should struggle to get by in one of the richest countries in the world.
The latest survey of members of The Royal Institution of Chartered Surveyors (RICS) suggests that house prices are continuing to rise, despite signs of shrinking demand. RICS found that 25% of surveyors reported new buyer inquiries falling in July - the third consecutive month of decline. – and that expectations for sales in the next 12 months were the gloomiest since March 2020, when the Covid lockdowns began. Higher interest rates and the cost-of-living crisis were cited as being among the causes. However, 63% of surveyors also said they had seen prices increasing in July - down from the 78% seen in April - but still above the long-term average as demand continues to outstrip supply. The general consensus was that house prices will still be higher in a year's time than they are now.
Heathrow airport CEO John Holland-Kaye says that some 6.3 million people used the airport in July, up from 1.5 million in the same month a year ago when Covid measures all but grounded airplanes. The airport has seen “the largest rise in passenger numbers of any European airport in the last year,” he said, adding that the recently introduced cap on passenger numbers meant travellers were “seeing better, more reliable journeys”. There had been fewer last minute flight cancellations since the measure was introduced last month to cope with disruptions amid a shortage of staff that left passengers facing long waits at check-in, security and baggage collection, he said. About 7.75 million passengers travelled through Heathrow in July 2019, before the pandemic hit. The UK’s busiest airport now expects about 16 million passengers to travel through between July and September.
Sainsbury's and Tesco have joined Marks and Spencer, Aldi and Waitrose in removing disposable barbecues from their shop shelves during the current heatwave. Sainsbury's said the policy was a precautionary measure, but did not say how long it would continue. Tesco said the move was temporary.
Shop owners Stephen and Linda Ellis were “reduced to tears” after a fundraiser started by their daughter, Claire York, raised nearly £4,000 to replace a stock of chocolate which melted in the heatwave. They about £1,000 worth of confectionery when the air conditioning in their Scunthorpe shop failed, the BBC reports. Ms York said they were "overwhelmed" by the response to the fundraiser, which attracted donations from people all over the country. Thanks to the generosity of people, her parents had been able to replace the lost stock and buy a secondary cooling machine, she said.
McDonald's is to slowly start to reopen some branches in western Ukraine and the capital Kyiv, having closed them in February when Russia invaded the country. Despite the closures, the US fast-food giant has continued to pay more than 10,000 staff employed in the country, but has sold branches in Russia. Other major Western companies that have reopened businesses in Ukraine recently include Nike, KFC and Mango, Sky News says. The International Monetary Fund expects the Ukraine economy to shrink by 35% in 2022, in part due to businesses halting operations because of the war.
Johnson & Johnson (J&J) is to stop making and selling its talc-based baby powder anywhere in the world from next year. The healthcare titan stopped selling talc in the US more than two years ago, following a series of lawsuits from women who alleged its talcum powder contained asbestos and caused them to develop ovarian cancer, allegations J&J denies. "As part of a worldwide portfolio assessment, we have made the commercial decision to transition to an all cornstarch-based baby powder portfolio," J&J said in a statement. The firm added that cornstarch-based baby powder is already sold in countries around the world, and reiterated its position that its baby powder is safe to use, saying: "Our position on the safety of our cosmetic talc remains unchanged."
Russian oil production is set to drop by 20% next year as the European Union’s import ban on Russian oil-product shipments kicks in, according to the International Energy Agency (IEA). The Paris-based agency says monthly declines in output will start as soon as this month as the Kremlin cuts back oil refining, and will quicken as the embargo comes into force. It estimates some 1 million barrels per day of Russian products and 1.3 million barrels per day of crude oil would have to find new homes due to the planned EU bans. In the past three months, Russia’s oil output has risen, reaching nearly 10.8 million barrels a day last month amid higher domestic oil-processing and robust exports as the country redirects crude flows away from the EU to Asia.
Argentina's central bank has raised its main rate of interest to 69.5% in an attempt to contain soaring inflation. The latest 9.5% raise is the eighth hike this year, the BBC reports. Inflation in the country has hit a 20-year high of over 70%, and it is forecast to top 90% by the end of the year. The job of controlling soaring prices, tackling high debt levels and reining in government spending in South America's second largest economy are now the remit of Argentina's latest finance minister, Sergio Massa, the third person to hold the post since early last month. In July, Martín Guzmán resigned as finance minister after being in the role for more than two and a half years. His successor Silvina Batakis lasted just a month in the post. Earlier this year, Argentina just avoided defaulting on a $44bn (£33.99) International Monetary Fund loan. In recent weeks, protestors have taken to the streets of capital Buenos Aires to demonstrate against President Alberto Fernández's handling of the economy.

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