Business

UK Economy Stagnates in Q3 Amid Growing Recession Fears

Published

4 days ago

December 23, 2024

RTX

The UK economy recorded zero growth in the third quarter of 2024, reflecting a marked slowdown from the 0.4% growth seen in the previous quarter, according to revised figures from the Office for National Statistics (ONS). The flatlining gross domestic product (GDP) figure, which fell short of analyst expectations of 0.1%, underscores mounting economic challenges as businesses and households face heightened uncertainty.

Key Factors Behind the Stagnation

The lack of growth in the services sector, particularly in the insurance and financial industries, weighed heavily on the economy. The production sector also contracted by 0.4%, largely due to a decline in gas, electricity, air conditioning, and steam supply.

Alpesh Paleja, interim deputy chief economist at the Confederation of British Industry (CBI), attributed the stagnation to a challenging business environment. “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds,” Paleja said. “Firms expect to reduce both output and hiring, and price growth expectations are getting firmer.”

Businesses have voiced concerns over policy changes introduced by the Labour government following its election in July, including higher employer national insurance contributions (NICs) announced in the Autumn Budget. These measures have reportedly led many companies to reassess their budgets as the new year approaches.

Mixed Sector Performance

While exports declined by 0.5% and imports fell by 2.5%, a slight rise in net trade helped offset some losses. Construction activity showed modest improvement, though it fell short of expectations.

Household spending remained unchanged from the previous quarter at 0.5%, as consumers grew cautious with festive expenses on the horizon. Meanwhile, business investment provided a rare bright spot, rising by 1.9% compared to 1.2% in the previous quarter.

Government consumption rose at a slower pace than anticipated, further reflecting the tepid economic environment.

Outlook for 2025

Paleja called on the government to take decisive action to restore business confidence and encourage investment. “As we head into 2025, firms are looking to the government to boost confidence and give them a reason to invest,” he said, highlighting the need for reforms in areas like the apprenticeship levy, business rates, and occupational health incentives.

Geopolitical uncertainties, including the Russia-Ukraine and Israel-Palestine conflicts, along with escalating trade tensions involving China, are expected to add further pressure on businesses in 2025. Analysts warn that without significant government intervention—such as tax breaks and innovation incentives—the UK risks prolonged stagnation.

The Labour government faces increasing pressure to chart a clear industrial strategy that fosters stability and growth, providing much-needed support for both businesses and households as the economy heads into the new year.

Business

Denmark Ranks as Europe’s Most Affordable Country for Homebuyers, Report Finds

Published

2 hours ago

December 27, 2024

RTX

A recent study by BestBrokers.com has revealed that Denmark offers the shortest time to save for a home in Europe, with the average property requiring the equivalent of 114 net monthly salaries to purchase. The report, which assessed property affordability across 62 countries, considered factors such as average income, property prices, inflation, and real mortgage interest rates (adjusted for inflation).

Denmark Leads for Affordability

According to the findings, a 100-square-meter property in Denmark is the most affordable in Europe relative to wages, despite the country being one of the EU’s most expensive in terms of goods and services. Eurostat data from 2023 indicated that prices for goods and services in Denmark were 43% above the EU average. However, high average earnings — the seventh-highest in Europe — offset the cost of housing, making homeownership more attainable.

Ireland and Sweden followed Denmark as the second and third most affordable European countries, requiring 123 and 129 net monthly salaries, respectively, to purchase a 100-square-meter property. This translates to roughly 10 years of annual earnings.

Challenges in Eastern Europe

At the other end of the spectrum, Slovakia and the Czech Republic were identified as the least affordable countries in Europe for homebuyers. In Slovakia, the average home costs 297 monthly salaries, equating to nearly 25 years of wages. For individuals saving half of their income, it would still take 50 years of disciplined saving to afford a family home.

Global Affordability Rankings

The report extended its analysis beyond Europe, naming South Africa as the world’s most affordable country to buy property relative to wages. In South Africa, a 100-square-meter home costs 71 monthly salaries, or just under six years of earnings. The United States ranked second, requiring 76 average monthly salaries to purchase a home, though property prices vary significantly across states.

Nepal and Turkey ranked as the least affordable countries globally. In Nepal, 684 monthly salaries are needed to buy a home, while in Turkey, the figure is 631, equivalent to over 52 years of income.

A Theoretical Assessment

BestBrokers.com clarified that their analysis provides a theoretical perspective, excluding living costs such as food, rent, childcare, and other expenses. It offers a snapshot of property affordability, but real-world factors could significantly impact the timeline for homeownership.

Caution Advised

The report serves as a guide but cautions readers to consider their circumstances before making financial decisions. Housing affordability is influenced by local economic conditions, and saving strategies will differ widely across regions.

This analysis highlights disparities in property affordability and underscores the significant challenges faced by aspiring homeowners in many parts of the world.

Business

Boxing Day Retail Footfall Declines as UK Shoppers Shift to Online Deals

Published

2 hours ago

December 27, 2024

RTX

The UK’s traditional Boxing Day sales saw a significant decline in physical store footfall this year, with the rise of online shopping and all-year deals overshadowing the once-iconic shopping event. Several major retailers, including John Lewis, Next, Marks & Spencer, and Aldi, also chose to remain closed on Boxing Day, further reducing in-store activity.

Data from MRI Software revealed that Boxing Day footfall across UK retail destinations dropped by 4.9% compared to 2023. High streets experienced a steeper decline of 6.2%, while shopping centres saw a 4.2% reduction in foot traffic.

Retail Sector Under Financial Strain

The decline in Boxing Day shopping is exacerbating financial stress for UK retailers, with many already struggling amid tough economic conditions. Corporate restructuring firm Begbies Traynor reported that 2,124 retailers faced financial distress in the first 11 weeks of the fourth quarter, a slight decrease from 2,142 last year but markedly higher than the 1,696 reported in the third quarter of 2024.

Julie Palmer, a partner at Begbies Traynor, highlighted the compounded challenges in the sector, stating:
“The weaker-than-expected retail sales performance in November, traditionally a critical month, underscores the tough trading conditions as consumers hold off on purchases amid low confidence and rising prices. Measures from the Autumn Budget, such as increased National Insurance Contributions and minimum wage hikes, will further strain businesses, likely leading to elevated insolvency levels in 2025.”

Changing Shopping Trends

Boxing Day, once synonymous with massive in-store discounts, is increasingly becoming a day for relaxation, family time, and travel rather than shopping. Cold and wet weather, coupled with the convenience of online retail, discouraged many from venturing out.

The surge in online shopping has reshaped consumer habits, with many preferring the ease of browsing deals from home. Retailers have responded with year-round discounts and steep online offers during holiday seasons, reducing the appeal of traditional end-of-year sales events.

This shift has led to mixed outcomes. While online discounts have helped attract shoppers and stabilize sales for some retailers, it has undermined the allure of Boxing Day as a physical shopping occasion.

Broader Economic Pressures

Higher interest rates, soaring inflation, and geopolitical uncertainties have dampened consumer sentiment, causing shoppers to prioritize essential spending over big-ticket purchases. At the same time, retailers are grappling with rising operational and labor costs, further squeezing profit margins.

As the UK retail sector faces mounting challenges, the decline in Boxing Day sales symbolizes a broader shift in consumer behavior and highlights the urgent need for adaptation in an evolving marketplace.

Business

Turkey’s Central Bank Cuts Interest Rate Amid Continued Disinflation

Published

1 day ago

December 26, 2024

RTX

The Central Bank of the Republic of Turkey (CBRT) has announced a significant cut to its benchmark one-week repo rate, reducing it by 250 basis points to 47.5%. The move, exceeding economists’ expectations of a 150-basis-point reduction, signals a shift in monetary policy following eight consecutive meetings of steady rates.

Inflation Trends Drive Policy Shift

The rate cut comes as Turkey experiences sustained disinflation. November’s annual consumer price index (CPI) dropped to 47.09%, the lowest since June 2023 and down from 48.58% in October. This marks the sixth consecutive month of declining inflation. On a monthly basis, inflation rose by just 2.24%, the smallest increase in five months.

In a statement, the CBRT noted that leading indicators suggest a continued decline in the inflation trend for December, supported by moderating domestic demand. While core goods inflation remains contained, improvements have also been observed in service sector prices.

The central bank emphasized that its tight monetary stance is playing a crucial role in reducing inflation by curbing domestic demand, strengthening the Turkish lira, and improving inflation expectations. However, it acknowledged lingering risks and reiterated its commitment to a cautious approach, adjusting its policy based on evolving conditions.

Future Inflation Goals

The CBRT reaffirmed its medium-term inflation target of 5%, with a tolerance range of 2%. It projects inflation to fall to 21% by the end of 2025 and 12% by the end of 2026. Economists, including ING Group’s Muhammet Merkan, view these targets as more achievable but note that delays in the disinflation process could attract scrutiny.

Economic Stabilisation Gains Recognition

Turkey’s recent economic policies have garnered praise internationally. In November, Standard & Poor’s upgraded Turkey’s long-term sovereign credit rating to BB- from B+, citing improved monetary policy, a stabilized lira, and the rebuilding of foreign reserves. The agency highlighted a narrowing current account deficit, now reduced by about four percentage points of GDP since 2022, as a key achievement.

Similarly, BBVA commended the CBRT’s accumulation of foreign reserves, which has bolstered its status as a net foreign currency buyer.

Challenges Ahead

Despite progress, Turkey faces challenges. The Organisation for Economic Co-operation and Development (OECD) forecasts slower GDP growth, predicting 3.5% growth in 2024 and 2.6% in 2025 due to ongoing macroeconomic adjustments.

Market reactions to the rate cut have been muted. The Turkish lira remained stable against the euro, with the exchange rate holding at 36.61. Since November, the lira has strengthened by 2% against the euro but has depreciated by 12% over the year.

As Turkey works toward sustained disinflation and economic stability, the CBRT’s tight monetary policy and coordination with fiscal measures will be critical to navigating these challenges effectively.