UK economy shows more signs of stagnation

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13th September 2022

Bite-sized business news from the UK and beyond
Good morning In a bid to get more people back in the office civil servants in the Cabinet Office, which has around 2,700 staff, have been told that management will monitor how often they log on to their computers to track how much they work from home.

It comes after business secretary, and former Cabinet Office minister, Jacob Rees-Mogg started a drive earlier this year to get civil servants back into the office post-Covid. This included sticking notes that read “sorry you were out when I visited … I look forward to seeing you in the office very soon” on empty desks.
Today's stories
  • UK economy shows more signs of stagnation
  • Job cuts planned at Wall Street giant as deals dry up
UK economy shows more signs of stagnation

What happened?
Official data released yesterday showed the UK economy grew 0.2% between June and July, less than the 0.4% expected, in another sign that the country is heading into an economic downturn amid a cost of living crisis.

How did we get here?
On the surface the monthly increase in economic output looks positive however it came from a low base and was impacted by one-off events:
1. The extra bank holiday in June, when the economy shrank by 0.6%. 
2. An uptick in the service sector – which makes up 80% of the economy – was boosted by England hosting the Women European Championships and the Commonwealth Games.

Analysts are concerned as the economy flatlined in the three months to July compared with the previous three month with a decline in the service sector offset by growth in manufacturing and construction.

The rising cost of living has dented consumer spending power
This summer inflation reached a 40 year-high of 10.1%, fuelled by surging energy prices. As average wage growth lags behind, households are experiencing a cost of living squeeze.

The Bank of England has already predicted that the UK will enter a recession before the end of the year that will last for the whole of 2023. The Bank has delayed its interest rate decision until next week following the death of the Queen but is expected to raise interest rates from the current rate of 1.75%, to tame inflation, despite the risks to economic growth.

Looking ahead there are events that could help or hinder the economy
Last week newly appointed prime minister announced a £150bn package to support households and businesses with their energy bills. Economists expect this could reduce inflation by 4-5% and help limit an economic downturn.
Analysts have said the bank holiday for the Queen’s state funeral next Monday, as well as the 10 days of national mourning, could impact economic growth and push the UK into recession sooner than expected.
Other stories to keep you in the loop
  • Bank of England delays interest rate decision after Queen's death
  • Liz Truss plans 'emergency budget' to unveil tax cuts next week
  • Shops announce closures on Queen's funeral
  • London hotel prices soar ahead of the Queen’s funeral
  • Heathrow passenger numbers improving but still below pre-pandemic levels
  • Japan could lift cap on foreign tourists to lift economy
Job cuts planned at Wall Street giant as deals dry up 

What happened?
US investment bank Goldman Sachs is beginning its biggest round of jobs cuts since the start of the pandemic, according to reports in the New York Times.

Goldman is adjusting to life post-Covid
Last Tuesday, the Wall Street banking giant ordered all staff to return to a mandatory and full-time in-person workweek in its New York headquarters as it ended the last of the pandemic work policies. Even the office’s free coffee station, that had been introduced last year to encourage staff back to the office, had been eliminated. 

Now its preparing to layoff hundreds of its 47,000 strong workforce. Before the pandemic the bank would routinely cut 1-5% of employees as part of annual performance reviews. This practice was suspended during Covid but could restart soon as dealmaking activity in the mergers and acquisition arm fades.  

2021 was a blockbuster year for M&A with Wall Street banks posting record profits from fees generated advising companies on buying other companies, financing and issuing shares. To cope with strong demand for their services banks went on a hiring spree – Goldman alone increased staff by 15% - and offered six figure starting salaries to attract junior talent.

But the M&A sector is notoriously fickle. The growing concerns over a US recession and the central bank raising interest rates aggressively to stem decades high inflation means that prospects for arranging and financing deals have dried up.

Zooming out: Goldman isn’t likely to be the only bank to cut workers. Pay is the biggest expense for banks and the first area to be reviewed when business tails off. Before the pandemic, Wall Street firms typically laid off their bottom performers in the months after Labour Day in September and before bonuses are paid out. 
Stat of the day

There are now 1.5m over-65s in the workforce, taking the employment rate of this age group to a record 12%
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