UK trade deficit narrows but manufacturing weakens

An increase in oil, chemical and aircraft exports helped the trade deficit in goods to fall by more than £2bn to £7.72bn, the ONS said. Fewer imports of aircraft and ships also boosted the figures, it said.Manufacturing output rose by 0.3% in December, less than the 0.6% predicted. The wider measure of industrial output rose by 0.4% in the month.

However, the ONS said the weaker-than-expected growth was not enough to change the estimate of GDP growth in the fourth quarter of 2013, which was 0.7%.

When services were included, the overall trade deficit narrowed to £1bn in December. This was down from a deficit of £3.6bn the month earlier and also the smallest deficit since July 2012.

'Even picture'
Despite the weaker-than-expected manufacturing figures, Lee Hopley, chief economist at the EEF manufacturers' organisation, remained upbeat.

"Manufacturers had a strong finish to 2013, but more encouraging, are the indicators we've seen since the start of the year which suggest that positive trend has rolled into the early part of 2014.

"Our expectation is that we see another quarter of 0.6% expansion in the three months to March, with a pretty even picture across sectors.

Ms Hopley added that export demand would "gather pace" through the year, and the official data would follow.

The UK's economy grew last year at its fastest pace since 2007, expanding by 1.9%.

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Strong UK services data 'points to fastest economic growth in 15 years'

PMI score suggests economy grew by 1.2% in the three months to September, analyst says

Britain's economy may have expanded at its fastest pace in 15 years over the past three months, analysts suggested on Thursday, after an upbeat survey of the key services sector suggested it is growing at a healthy clip.

The monthly Purchasing Managers' Index for services declined slightly, to 60.3 in September, from 60.5 in August, but the average score over the quarter suggested the fastest growth in services output since mid-1997.

Chris Williamson, chief economist of data provider Markit, which compiles the survey, said taken together with similarly strong readings for activity in the much smaller construction and manufacturing sectors, this latest survey signals even stronger growth in GDP than the 0.7% recorded between April and June.

"Historical comparisons of the PMI with official GDP data suggest that the economy grew by 1.2% in the three months to September. This was a marked gathering in the rate of expansion compared with the 0.7% increase seen in the second quarter."

GDP growth Photograph: Graphic

Michael Tinsley, of BNP Paribas, added that in the second quarter of 1997, the last time the combined PMI surveys were this strong, GDP growth was 1.2% – well above Britain's long-term average – and averaged 1% every quarter over the following year.

"It remains to be seen whether the UK can repeat anything like that feat, and we would prudently expect some cooling in the data in coming quarters. But for now there is no mistake the economy is growing jolly fast," he said.

Firms reported that incoming new business had continued to be strong, they were hiring new staff, and expectations of future activity were also positive – a marked turnaround from the start of 2013, when many economists feared that the UK may have dipped into a renewed recession.

Howard Archer, of consultancy IHS Global Insight, described the latest survey as "very good news" – though he warned that it could force the Bank of England to take earlier action on interest rates than it currently expects. Under new governor Mark Carney's policy of "forward guidance", the Bank's monetary policy committee has pledged not to raise interest rates until the unemployment rate falls at least to 7%, provided inflation does not get out of control. The committee expects that not to happen for up to three years.

But many City analysts are betting that borrowing costs will have to rise sooner, as the economic recovery gathers pace. The first estimate of GDP growth for the third quarter of 2013 will be published later this month.

Earlier on Thursday, PMI surveys for the euro area suggested that the 17-member zone continued to clamber out of recession in the third quarter.

The services index jumped to a 27-month high of 52.2 – above the 50 mark that divides expansion from contraction. German activity expanded for the fourth successive month; while the French survey suggested the country's services sector scored its first expansion in more than a year.

The eurozone economy expanded by 0.3% in the second quarter of the year, marking the end of a gruelling 18-month downturn; but several member-countries, including Spain and Italy, and bailed-out Greece and Cyprus, remain in recession.

Article Source : http://www.guardian.co.uk

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MPs criticise accounting firms on tax avoidance

Corporate tax avoidance has risen to the top of the political agenda in Britain in the past year following reports which showed some major companies paid little or no tax in the country by shifting profits to tax havens.

While the four biggest accounting firms, KPMG , Deloitte , Ernst & Young and Price water house Coopers said they no longer advised on aggressive tax avoidance plans, the Public Accounts Committee said: "They are still devising complex schemes that look artificial".

It went on to say the accounting firms were still prepared to recommend tax arrangements which had as little as a 50 percent chance of being successful if challenged in court.

The report also questioned the way staff from the "Big Four" were seconded to the government to help draft tax rules.

"The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government," Committee chair Margaret Hodge said.

But the firms said they behaved ethically and that the complexity of tax law was largely to blame for any appearance to the contrary. They welcomed the committee's calls for the rules to be simplified.

"We perform an essential function in the UK economy by helping our clients navigate this complexity," Bill Dodwell, Head of Tax Policy at Deloitte said.

The committee called on companies to disclose more information about their tax affairs. The government has also called for more disclosure but has said it wants this to be done on a voluntary, rather than a mandatory, basis.

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Article Source : http://uk.reuters.com

UK avoids triple-dip recession with better-than-expected 0.3% GDP growth

George Osborne says growth is evidence the coalition's policies are helping to 'build an economy fit for the future'

George Osborne has welcomed news that Britain's economy expanded by a stronger-than-expected 0.3% in the first quarter of 2013, avoiding a triple-dip recession.

As the first estimate from the Office for National Statistics showed that a healthy performance from the services sector helped GDP growth to beat the 0.1% expected by City pundits, the chancellor said it was evidence that the coalition's policies were helping to "build an economy fit for the future".

"Today's figures are an encouraging sign the economy is healing," he said. "Despite a tough economic backdrop, we are making progress. We all know there are no easy answers to problems built up over many years, and I can't promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future."

The key services sector expanded by 0.6% on the quarter, according to the ONS, while industrial production also grew, by 0.2% – though much of that was accounted for by North Sea output. The struggling construction sector declined by 2.5%.

The business secretary, Vince Cable, said: "Today's figures are modestly encouraging and taken alongside other indicators, such as employment figures, suggest that things are going in the right direction."

Despite the unusually cold weather in March, the ONS denied that the weather had had any measurable impact on the figures. While retailers suffered in January and March, that was partly offset by increased demand for energy from householders turning up their heating against the freezing temperatures outside.

The spring bounce in the economy will have come as a relief at the Treasury, with officials from the International Monetary Fund due to arrive in the UK on 8 May to scrutinise the coalition's policies. A negative number, after the 0.3% contraction in the final quarter of 2012, would have marked an unprecedented triple-dip recession.

However, Labour will seize on the fact that, as the ONS said in its statement, GDP "has been broadly flat over the last 18 months". Output from the economy remains 2.6% below its pre-crisis peak in 2008.

Tony Dolphin, chief economist at the Institute for Public Policy Research, said the economy was "stuck in a rut".

"Normally, we would expect the economy to grow by around 12% over any five-year period. The fact that it has contracted by 2.6% instead means almost 15% of potential output has been lost, along with the employment opportunities and tax revenues that would have accompanied it," he added.

David Brown, of New View Economics, said: "The government have been very, very lucky. They have avoided a third dip into recession by the skin of their teeth. There is nothing to celebrate over as the UK economy is not out of the woods yet."

Sterling hit its highest level against the dollar in two months after the news, rising by more than a cent, to $1.5414, amid speculation that the Bank of England will be less likely to expand its recession-busting quantitative easing programme against the background of a healthier economy.

"From a policy point of view the signs that the UK economy may be growing, albeit weakly, are probably enough to put to rest any chance that the Bank of England would expand QE in May," said David Tinsley, at BNP Paribas. Three of the Bank's nine members voted for an expansion of QE at their April meeting.

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Article source : http://www.guardian.co.uk