07/05/2015 BCC Economic Review PAGE 1 OF 4

BCC Monthly Economic Review May 2015 (Based on April 2015 data releases)

Monthly headlines:

Outlook for the UK economy remains strong, despite GDP growth slowing to three-year low

The UK’s trade deficit widens, but public finances continue to improve

Global outlook remains uncertain as China and US growth slows in Q1

UK economic growth slowed sharply in Q1...

The UK economy grew by 0.3% in Q1 2015, the

slowest rate since Q4 2012 and half the growth rate

of 0.6% recorded in the previous quarter. In annual

terms, UK GDP growth slowed to 2.4% in Q1, from

3.0% in Q4. Although the BCC’s Quarterly Economic

Survey (QES) revealed that most of the key balances

weakened in Q1 2015 when compared with Q4 2014

(see Chart 1), the scale of the slowdown recorded in

the official data is at odds with the latest QES data,

which indicates that the UK economy is doing

better than the preliminary GDP estimate suggests.

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Chart: 1 Real GDP and Domestic Sales

Quarterly GDP growth

Domestic sales (Manufacturing)

Domestic sales (Services)

...as output weakens across the economy…

Output fell in three of the four main industrial

groupings (see Chart 2). In Q1, industrial production

fell by 0.1%, construction output declined by 1.6%,

and agricultural production dropped by 0.2%. In

contrast, the service sector - which accounts for over

three quarters of UK economic output - was the sole

driver of GDP growth in the first three months of

2015, growing by 0.5% in the quarter. Although this

was weaker than the 0.9% growth recorded in the

previous quarter, it would not be surprising if this

estimate was upgraded in due course.

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Chart 2: UK GDP by Sector, Q1 2015

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Chart 3: UK Employment

Employment (millions)

Employment - last 3 months (Manufacturing)

Employment - last 3 months (Services)

...however a strong jobs market...

In the three months to February 2015, UK

employment rose by 248,000 compared with the

previous three months. The number of people who

are unemployed fell by 76,000 over the same period.

Although the latest BCC Quarterly Economic Survey

(QES) revealed that the backward looking

employment balances weakened in Q1 (see Chart 3),

the declines were from the record highs recorded in

the previous quarter. Overall, both the latest Official

for National Statistics (ONS) and QES data highlight

the continued strength of the UK labour market.

Source: ONS GDP first estimate, Q1 2015

Source: ONS GDP first estimate, Q1 2015

Sources: BCC and ONS

07/05/2015 BCC Economic Review PAGE 2 OF 4

+

some

...and low inflation to support UK growth...

CPI inflation stood at 0% in March, unchanged from

February. Falling clothing and gas prices put the

largest downward pressure on prices overall, but

these were offset by a rise in the price of motor fuels

and smaller upward contributions from a variety of

other products, such as food. Although any period of

deflation in the coming months is likely to be

temporary, the latest QES revealed that intentions to

raise prices in the coming months fell in Q1. (see

Chart 4). This means that inflation is set to remain

low in the near term which alongside growing

employment will help to support UK GDP growth.

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Chart 4: Intention to Raise Prices

Prices (services) Prices (manufacturing)

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Chart 5: NICs and Income Tax Receipts

NICS Income Tax

...but the UK’s trade position remains weak... The UK's trade deficit nearly doubled in February

rising to £2.9 billion, from £1.5 billion in January (see

Chart 6). There was a deficit of £10.3 billion on

goods, which was partly offset by a surplus of £7.5

billion on services. This mirrors the findings from the

latest QES, with the export balances for both

manufacturing and services firms weakening in Q1.

The widening of the trade deficit mainly reflects a

fall in exports of goods to non-EU countries,

particularly to the US, where exports decreased by

£0.7 billion. Overall the latest trade figures confirm

that rebalancing the UK economy remains too slow.

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Chart 6: UK's Net Trade Position

Source: ONS UK Trade, February 2015

...and the public finances are improving…

UK public-sector borrowing, excluding public sector

banks, stood at £7.4 billion in March 2015, a decrease

of £0.4 billion, compared with March 2014. This

improvement was driven by increased revenues from

income tax and national insurance, which both

reached their highest levels since records began in

1993 (see Chart 5). This meant that despite a slow

start to the financial year, public-sector borrowing

totalled £87.3 billion in 2014/15, £11 billion lower

than the amount borrowed in 2013/14. Despite the

recent improvement, the task of balancing the UK's

public finances remains an uphill challenge.

Source: BCC QES Q1 2015

Source: ONS Public Finances, March 2015

07/05/2015 BCC Economic Review PAGE 3 OF 4

Bottom line: Overall, April’s economic data releases provide further evidence that the UK economy will continue to grow at a good pace. In contrast, the outlook for the global economy remains rather more uncertain with the growth prospects of individual countries likely to remain mixed. Although US growth is likely to pick up in the coming months, China’s economy is expected to continue to slow and the eurozone remains weak.

For more information please contact: Suren Thiru, UK Economic Advisor. Email: s.thiru@britishchambers.org.uk. Tel: 020 7654 5801

...as the US economy weakens in early 2015...

The US economy grew by 0.2% on an annualised basis

in Q1 2015, weaker than the growth of 2.2% recorded

in Q4 2014 (see Chart 7). This slowdown was driven by

a 7.2% fall in exports and weaker consumer spending

and investment. However, with the slowdown largely

due to a number of short-term factors, including the

harsh winter weather which hit consumer spending,

the US economy may well bounce back in the rest of

2015, mirroring a similar trend seen in 2014 when US

GDP contracted by 2.1% in Q1 before bouncing back in

subsequent quarters.

…and China's economy continues to slow...

China - the world’s second largest economy - grew at

an annual rate of 7.0% in Q1 2015. This is the slowest

rate since Q1 2009 and lower that the growth of 7.3%

recorded in the last quarter of 2014 (see Chart 8). This

mirrors last year’s slowdown with the Chinese

economy growing by 7.4% for 2014 as a whole, the

weakest rate since 1990. The continued slowdown in

Chinese growth reflects the weakness in the property

market, high debt levels following the credit-fuelled,

investment-led recovery from the recession of 2008-09

and China's drive to rebalance its economy towards

consumer-driven growth.

...but the eurozone is showing signs of life.

The number of people who were unemployed in the

eurozone stood at 18.1 million in March, 679,000

lower compared with March 2014. This meant that the

eurozone unemployment rate stood at 11.3% in

March 2015, the joint lowest rate since May 2012 and

lower than March 2014’s unemployment rate of 11.7%

(see Chart 9). Encouragingly, the eurozone also edged

out of deflation in April after four months of falling

prices. Despite the gradual improvement in inflation

and unemployment data, the recovery in the eurozone

remains very fragile.

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Chart 7: US GDP

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Chart 8: China GDP

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Chart 9: Eurozone Unemployment rate

Source: Eurostat

Source: BEA

Source: Oxford Economics

07/05/2015 BCC Economic Review PAGE 4 OF 4

Economic Summary Chart Deteriorating No change Improving

*Colours indicate an improvement or deterioration of each indicator and refer to monthly changes unless stated. For example, an improvement in employment refers to an increase, while an improvement in unemployment refers to a fall. Dates refer to the release dates for each indicator. **Annual changes. ***Quarterly changes. ****Latest figures are estimates.

Sector Indictors (sources) Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15

Household Retail Sales (ONS)

Consumer Confidence (GfK NOP)

House Prices (Halifax)

New car sales (SMMT)**Mortgage approvals (Bank of England)

Business Business confidence (BCC)***

Business lending (Bank of England)

Service sector output (ONS)

Production output (ONS)Investment intentions (BCC)**

Labour market Employment (ONS)

Unemployment (ONS)

Claimant count (ONS)

Earnings (ONS)Economic Inactivity (ONS)

Government 10 year Government bonds (Bloomberg)

Public sector net borrowing (ONS)**

Public sector net debt % of GDP (ONS)**

Tax receipts (ONS)**Current Budget Deficit (ONS)**

External UK trade balance (ONS)

Exchange rate (Bank of England)

Export Sales (BCC)***Export orders (BCC)***

Global US GDP (BEA)****US unemployment (BLS)Eurozone GDP (Eurostat)****Eurozone Unemployment (Eurostat)China GDP (Oxford Economics)China unemployment (National Bureau of Statistics)