UK Business Confidence Cools

3rd November 2014

The US GDP estimate for the third quarter of 2014 showed that the economy grew 3.5% on an annualised quarter-on-quarter basis. The figure was above consensus expectations of 3.0% and suggests a continued economic recovery, putting the US on track for 2.2% growth over 2014. Other major economic developments in the US last week included the US Federal Reserve's widely anticipated completion of bond purchases under the third round of quantitative easing. Despite QE3 being finalised, the Fed is still holding interest rates at 0.25% and is expected to continue doing so for a 'considerable amount of time'.

Economic news coming out of the Eurozone over the last week noted marginal improvements in certain indicators, but certainly did not create cause for celebration. Unemployment remained unchanged for the fourth consecutive month at 11.5%, while consumer price inflation moved up from September's 0.3% to 0.4% for October. However, 'core' inflation decreased from 0.8% to 0.7%, suggesting that the uptick was driven not by actions of the European Central Bank (ECB), but by changes in energy and food prices, both of which are largely decided on world markets.

The week concluded with Friday's surprising announcement from the Bank of Japan. The central banks will increase purchases of long-term debt, thereby expanding its already extensive stimulus plan.

This week

The Q4 2014 ICAEW/Grant Thornton UK Business Confidence Monitor, published today, shows that business confidence in the UK cooled further in the fourth quarter and currently stands at +28.6. Although lower than the +32.3 level of the past three months, the Confidence Index remains high compared with most of the past 10 years. Three areas of concern highlighted by the index, which is a leading indictor for growth, are slowing export increases, skills shortages, and levels of staff turnover.

Considering increasing global economic uncertainty and low inflation, Thursday's Bank of England rate decision is expected to leave the base rate unchanged at the current 0.5% level. Also out on Thursday is the November rate decision from the ECB, which is expected to keep the currency area's benchmark interest rate at 0.05%.

Consensus expectations regarding US non-farm payroll is that 235,000 new jobs were created in October. While this is below the 248,000 jobs created in September, with non-farm payrolls averaging 227,000 in the first nine months of this year, the US is set for the highest annual job creation figure since 1999.