Market Loop - 📈Economic recovery hits a bump

ECONOMY
Economic recovery hits a bump

What’s going on?
The latest economic output data suggests that the UK’s post-lockdown recovery is running out of steam. Between July and September GDP rose 1.3% compared to 5.5% in the three months to June.

Why is this important?

Things were looking so rosy back in the spring. The lifting of the third lockdown led to more consumer spending as the shops and restaurants reopened with companies revving up production to meet the pent up demand.

But now it seems that the recovery is losing momentum.

Supply chain issues have impacted the manufacturing and construction sectors with car sales held back by microchip shortages and builders struggling to find supply materials.

Consumers also pulled back spending on the high street which led to tough trading for retailers.

The economy is still 2.1% smaller than it was at the end of 2019 before the pandemic hit. That leaves the UK some way behind other major economies, many of which have either already surpassed their pre-Covid level or are very close.
The US economy is now 1.4% bigger, France is 0.1% below and Germany is 1.5% smaller.

Takeaway
The service sector makes up around 80% of the UK economy so a slowdown in consumer spending has a big effect on the total picture.

Retailers are already warning of continued supply chain issues and rising inflation, this could dampen the pace of recovery going into the crucial Christmas period.

A combination of rising prices and slowing growth presents a headache for the Bank of England who have flagged that an interest rate hike is on the way.

TRANSPORT
Booming used car market boosts Auto Trader

Online used car platform Auto Trader reported almost a doubling of revenue in the six months to October driven by the shortage of new cars.

Car manufacturers the world over are struggling to get a hold of microchips – an important input in modern vehicles – as factories shutdown during the pandemic have taken time to restart.

The slowdown in the production of new cars has led to an increased demand for used models.

Auto Trader, which has over 400,000 mostly second-hand cars for sale, reported a 121% jump in profits to just over £151m.

The company was knocked sideways during lockdown as used and new car sales slumped. But following the reopening of the economy and with the help of lockdown savings, there has now been a surge in car demand. 

As new car production has slowed down consumers have turned to the used car market.

In October the average price for a used car rose 26%. Auto Trader predicts that the boom will continue for "a few more months" as "the new car supply is not coming back anytime soon, probably not until the back half of next year".

The results were well received by the market with shares closing up 14%.