6 December 2018


CBI surveys indicate subdued momentum

The CBI’s growth indicator showed that private sector growth slowed to a halt in the quarter to November, continuing to indicate slower growth momentum relative to Q3.

CBI surveys indicate subdued momentum

Meanwhile, tightness in the labour market seems to be pushing pay growth higher, but in real terms (i.e. adjusting for inflation), earnings growth remains well below pre-crisis norms. The Bank of England’s Financial Policy Committee judged the UK’s banking system to be in good health in its annual stress tests but flagged risks to financial stability from a sharp rise in global growth for leveraged loans and global debt vulnerabilities.

The UK labour market remained extremely tight in the three months to September, with the unemployment rate (4.1%) among its lowest since the mid-1970s (albeit edging higher on recent months). Encouragingly, real pay growth seems to be showing some signs of life, with average weekly earnings growth (excluding bonuses) picking up in the three months to September (3.2%). However, once inflation is taken into account, real pay growth remains modest and below pre-crisis norms.

The November CBI Growth Indicator showed that private sector growth was steady in the three months to November, at its weakest since March 2016. The slowdown was driven by a weaker performance in services, and slower growth in distribution; in particular, retailers, saw sales volumes fall in the three months to November. Meanwhile, manufacturing growth picked up slightly, but remained below the stronger readings seen this time last year.

In the Bank of England’s latest Financial Stability Report, the Financial Policy Committee (FPC) judged that the UK banking system could withstand a deep, simultaneous recession in the UK and global economy that is more severe than the global financial crisis. Despite the dramatic, worst-case scenario tested in the Bank of England’s annual stress test, UK banks would be able to maintain a capital ratio (following the scenario) that is twice as large as before the financial crisis.

Additionally, the FPC judged that the negative impact of a disorderly Brexit on UK banks’ capital would likely be “limited”. This is partly due to the geographic diversification of major UK banks, with only around half of their exposure being to the UK; this means that UK banks would be able to absorb losses incurred in the UK through their considerable exposure to foreign markets. The FPC noted a risk in the form of a sharp rise in global growth for corporate non-bank finance, particularly in the form of leveraged loans. Additionally, the FPC noted that current global debt vulnerabilities – specifically stemming from emerging markets, China, and Italy – pose a considerable risk to the UK banking system.

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