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Monthly Business Dashboard – March 2017

Hampshire County Council Area

dotted line – shows that Confidence (consumer and business confidence) drives the level of Business Activity (output, the volume of new orders/future output and employment in private sector). This in turn impacts on Labour Market performance and Costs/Prices, which in turn impact on Confidence.

·  Confidence – the green bars indicate that Business Confidence in the South East and the UK improved at the beginning of the first quarter of this year. Business sentiment index remained negative but it improved from -9.1 in Q4 2016 to -8.7 in Q1 2017 according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor.[1] The South East index improved from -9.8 in Q4 2016 to about -1 in the first quarter of this year.

Business confidence has been falling away long before the EU referendum with the South East sentiment in decline since Q3 2015. Business sentiment on this measure has been improving since the EU referendum. The latest reading for the South East represents relatively large improvement in business sentiment compared to the previous quarter but nevertheless the overall index has remained in negative territory for three quarter in a row (red area).

Business Investment in the UK decreased at the end of last year (red bar). Business investment in the final quarter of last year fell by 1.0% on the previous quarter according to the Office for National Statistics (ONS). The fall in business investment in Q4 2016 contrasts with the small increases in the previous two quarters. Business investment was estimated to have decreased by 0.9% between Q4 2015 and Q4 2016 and by 1.5% in 2016 (red area).

Consumer Confidence in the UK decreased in February (red bar). The UK index, a measure of a range of consumer attitudes, including forward looking expectations of the general economic situation, households’ financial position, and views on making major purchases dropped one point last month to -6. Three of the five measures saw decreases in February, and the remaining two measures increased.

The forward looking index that measures personal finances over the next 12 months decreased by two points last month to +1; this is four points lower than in February 2016. Expectations for the general economic situation of the country over the next 12 months increased to -20 last month; eight points lower than this time last year.

The major purchase Index decreased five points last month to +5; this is seven points lower than February 2016. The savings index decreased two points to -4 last month; this is six points lower than this time last year.

The overall index of consumer sentiment has recovered slightly since the EU referendum but in February it stood 6 points lower than at the same time last year (red area).

·  Business activity or Output growth at private sector firms in the South East increased marginally faster in February than in January. Growth in business activity or output growth at private sector firms in the South East increased from 55.3 in January (reading below 50 points to contraction) to 55.9 in February according to Markit/Lloyds TSB PMI survey. Business activity in UK slowed to a six-month low but nevertheless it remained solid. The UK index increased to 53.8 in February compared to 55.4 in January. If sustained over the quarter this level of activity points to 0.55% growth in business activity (output) at private sector firms in the South East compared to UK growth of around 0.35%.

South East, alongside Wales, had the second highest level of business activity in the country in February. Business activity increased in London, South West and East of England but at a slower pace than in the previous month.

Economic growth in the UK reached a two-year high at the end of last year according to the Office for National Statistics (ONS). The UK economy expanded by 0.7% in Quarter 4 compared to 0.6% in the previous estimate. Growth in 2016 was 1.8%, revised down by 0.2 percentage points from the preliminary estimated published in January. Economic growth in the first half of the year was slower than initially thought and growth in Q4 was arguably more balanced than in Q3.

The main contribution to economic growth in Q4 2016 came from consumer spending which was in line with the strong retail sales data for Q4 (up 1.2%). A slowdown in Q4 occurred within business investment category which fell by 1%, driven by subdued growth in ICT equipment and other machinery and equipment. The sharp depreciation of sterling is beginning to boost the demand for manufactured goods and UK exports. Exports increased by 4.1% and imports declined by 0.1% on the quarter.

·  Labour Market – the amber bars indicate that the Unemployment rate on the new measure (claimant count JSA + universal credit) remained unchanged in the Hampshire County Council Area and the UK in February. The number of claimants in the Hampshire County Council Area increased by 300 additional claimants to 6,530 and the unemployment rate not adjusted for seasonal factors remained unchanged to 0.8% in February.

The claimant count rates increased in Oxfordshire, East Sussex and Kent and remained unchanged in all other counties in the South East last month. The claimant count unemployment rate in the Solent LEP increased to 1.3% but the rate in Enterprise m3 remained unchanged to 0.7%.

The red area points to a higher unemployment rate in Hampshire in February 2017 than three months ago.

As indicated by the amber bar the Youth Unemployment rate (16-24 year olds) in the Hampshire County Council Area remained unchanged in February, but the UK rate increased last month (red bar). The number of young claimants (JSA+UC) in the Hampshire County Council Area increased by about 45 additional claimants to 1,340 but a proxy claimant count unemployment rate (claimant count JSA + universal credit) remained unchanged at 1% in February.[2] The old JSA only unemployment rate in Hampshire remained unchanged at 0.4% in February.

The claimant count youth unemployment rates increased in Oxfordshire, East Sussex, West Sussex and Kent and remained unchanged in all other counties in the South East last month. The claimant count youth unemployment rate in the Solent LEP increased to 1.3% but the rate in Enterprise m3 remained unchanged to 0.8%.

The amber area points to no change in the youth unemployment rate in Hampshire in February compared to November 2016.

As indicated by the red bar the Employment rate in the Hampshire County Council was lower in the most recent year for which data is available compared to the previous year. The UK rate increased compared to the previous year (green bar). In the year to September 2016 compared to the previous year (year to September 2015) the number of people in employment in the Hampshire County Council area decreased by about 13,900 and the rate decreased by about 2.3 percentage points to 79.5%. The decrease in employment was driven by self-employment, the number of employees in employment was up on the year.[3]

The size of the bar shows that at 79.5% the employment rate in Hampshire was well above the UK average (73.7%). The rate in Hampshire near an all time high but marginally lower than in Oxfordshire, Surrey and Buckinghamshire. The green area points to a higher employment rate in Hampshire in the year to September 2016 compared to the year to September 2014.

·  Prices/Costs – monthly and annual growth in house prices in the Hampshire County Council Area and the UK was faster in January than in the previous month (green bars).

Volatile monthly data shows that house prices in the Hampshire County Council Area on average increased by 1.2% (£3,500) in January compared to 0.6% in December. Monthly growth in house prices in the UK increased from 0.7% in December (revised downward from earlier estimate) to 0.8% in January.

Annual growth in house prices in Hampshire increased to 7.3% in January, from 7.1% in the previous month. The annual growth in the UK rose from 5.7% in December (revised downward from earlier estimate) to about 6.2% in January.[4] The average price of a property in Hampshire was about £302,900 in January or about 39% above the UK average (£218,300) according to the official House Price Index. House price inflation in Hampshire was above the upper end of the range where the rate is expected to be 99% of the time over the long-run (red area).

Volatile monthly data shows that house prices in Surrey increased by 0.6% in January after decreasing by about -0.2% in December. House prices in Oxfordshire on average increased by 1% in January, slightly faster than in West Sussex (up 0.9%). In London the average price of a property in January stood at about £490,700 or about 2.3 times the UK average. House prices in the South East increased by about 2.4% in January. Prices in London increased by about 3% in January and on an annual basis growth in January was 7.3% compared to 5.9% reported month.

Although house price inflation remains high compared to historic averages it is equally important to view house price increases in the context of several other important economic indicators. UK inflation rose again at 2.3% in February, growth in average earnings (excluding bonuses) was 2.3% in the three months to January, slower than reported last month (2.6%), and the Bank of England continues to maintain its ultra-low monetary policy.

Consumer Price Inflation[5] in the UK increased to 2.3% in February, the highest rate since September 2013 (red bar).

UK inflation was 1.8% in the previous month and the latest increase was higher than expected. Rising inflation in the UK continues to be driven by rising cost of imports driven by the fall in the value of sterling. Data on producer prices from ONS showed that input prices paid by UK manufacturers rose by 19.1% in February, compared to a year earlier. The large increase in input prices is reflected in higher manufacturing output prices (up 3.7% in February). Goods inflation increased to 1.9%, from 1.1% in January. Goods inflation in February was the highest in over 3 years. Services saw modest growth in inflation, from 2.6% to 2.8%.

The largest upward contribution to the CPIH inflation rate change came from transport costs, particularly due to increasing fuel prices in February. Also food prices had an upward effect on the rate for the first time since April 2014, increasing by 0.3% between February 2016 and February 2017. The increase in food prices was attributable to weather related shortages of vegetables on the continent.

The latest data suggest that UK inflation increased above the Bank of England’s 2.0% target (red area) for the first time in over three years.

UK’s economy has been resilient after the EU referendum with employment at its highest level and unemployment falling to the lowest rate since 1975. The latest survey data points to growth in business activity in the UK in Q1 albeit at a slower pace than in the final quarter of last year. Business activity in the South East increased at a faster pace in February than in the previous month.

Consumer confidence remains subdued but we have seen a relatively large improvement in business sentiment according to the ICAEW survey. Subdued wage growth coupled with rising inflation implies that real (inflation adjusted) pay is likely to start falling in the coming months which could affect consumer spending, the main driver of economic growth in the UK. The good news is found in rising contribution of net trade to economic growth but its effect on the rate of growth in the economy tend to be much smaller than consumer spending.

Next Publication Date:

Monthly Business Dashboard: 28 April 2017

Economic & Business Intelligence Service (EBIS), Research & Intelligence, Hampshire County Council.

[1] Net balance: determined by subtracting the percentage of companies reporting decreases in a factor from the percentage of companies reporting increases.

[2] The unemployment rates for the young age group are not available. Our (proxy) estimates are based on the latest official population estimates for the 16-24 age group in the area.

[3] For further information see Labour Market Update – Hampshire (March 2017)

[4] There is a time-lag between the sale of a property and the subsequent registration of this information with Land Registry. As new information becomes available, the published price indices are revised to reflect any new data.

[5] From 21 March 2017, the Consumer Prices Index including owner occupier’s housing cost (CPIH) became the headline measure of inflation but the Bank of England target is still based on the CPI measure. CPIH extends the CPI to include a measure of the costs associated with owning, maintaining and living in one’s own home, known as owner occupier’s housing costs (OOH), along with Council Tax. The CPIH rate last month was identical to CPI, 2.3%.