‘Sigh of relief’ for Labour as UK economy returns to growth in August, but trade deficit widens – business live | Business

Oof! BlackRock, the world’s largest money manager, has grown its assets under management to a new alltime high of $11.5 trillion.

Its latest financial results, just released, show that BlackRock pulled even more money from investors in the last quarter, and the last year, while the value of what it already owns rose.

Assets under management (AUM) rose by $2.4 trillion year-over-year, BlackRock reports, driven by $456 billion of net inflows and “positive market movements”.

Quite astonishing numbers really.

Laurence D. Fink, Chairman and CEO of BlackRock, says:

“Our strategy is ambitious, and our strategy is working. The assets we manage on behalf of our clients reached a new high, ending the third quarter at $11.5 trillion, having grown $2.4 trillion over the last twelve months.

In that time, clients have entrusted BlackRock with $456 billion of net inflows, including a record $221 billion in the third quarter. Third quarter organic base fee growth of 5% and technology services ACV [annual contract value] growth of 15% are each at multi-year highs.

Although the UK economy grew in August, it has lost momentum compared with the first half of this year (when growth was recovering after the small recession in 2023).

Gabriella Dickens, G7 economist at AXA Investment Managers, says:

The latest activity data showed the UK returned to growth in August, which will be somewhat of a relief to the Bank of England after two consecutive months of stagnation.

GDP showed a month-to-month increase of 0.2% in August, in line with ours and markets’ expectations, on the back of strength in the manufacturing and construction sectors.

The overall picture, though, is that momentum is easing. Indeed, on a three-month-on-three-month basis, growth slowed to just 0.2% in August, compared to downwardly revised 0.3% in July. Furthermore, over Q3, it is on track to post 0.2%, compared to 0.5% in Q2.

The UK economy returned to growth in August after flatlining for two months, in a boost for the chancellor, Rachel Reeves, before the autumn budget, my colleague Richard Partington writes.

The Office for National Statistics (ONS) said gross domestic product rose by 0.2% in August, after zero growth in June and July. The reading matched the forecasts of City economists.

Liz McKeown, an ONS director of economic statistics, said:

“All main sectors of the economy grew in August, but the broader picture is one of slowing growth in recent months, compared with the first half of the year.

“In August, accountancy, retail and many manufacturers had strong months, while construction also recovered from July’s contraction. These were partially offset by falls in wholesaling and oil extraction.”

Growth over the broader three months to the end of August also rose by 0.2%. The rate of expansion is slower than in the first two quarters of 2024, when the economy grew by 0.7% and 0.5% respectively after exiting a shallow recession at the end of 2023.

Reeves has promised to use Labour’s first budget in more than a decade to reboot economic growth, with a plan to prioritise investment, alongside measures to increase household incomes and repair crumbling public services. However, she has also warned that tough decisions will be required to balance the books.

The chancellor said the government would next week host its global investment summit to encourage the world’s biggest businesses to spend in Britain to bring jobs and activity to every part of the country.

The return of the UK economy to growth means a UK interest rate cut as soon as November isn’t certain, argues Suren Thiru, ICAEW economics director.

Following today’s GDP data showing the economy grew by 0.2% in August, Thiru says:

“These figures confirm a reassuring rally in output, as easing inflation and better weather helped return the economy to growth by reviving activity in key sectors, including retail and manufacturing.

“August’s uptick is unlikely to have prevented a slowdown in GDP growth across the third quarter, as lower business and consumer confidence may well have squeezed activity in September.

“The UK economy could blow a bit hot and cold over the near term, as the lift to incomes from muted inflation is hindered by growing consumer and business caution amid global geopolitical uncertainty and probable tax hikes.

“While interest rates are still likely to fall in November, these positive figures mean it’s not quite a done deal by giving the more hawkish rate setters enough encouragement over economic conditions to hold off voting to relax policy.”

The money markets are indicating there’s an 80% chance that the Bank of England cuts rates to 4.75% in November, down from 5% today.

Chancellor Rachel Reeves has welcomed the news that growth has returned to the economy.

“Growing the economy is the number one priority of this Government so we can fix the NHS, rebuild Britain and make working people better-off.

“While change will not happen overnight, we are not wasting any time on delivering on the promise of change.

“Next week, hundreds of the world’s biggest businesses will come to Britain as we deliver on our promise to bring investment, growth and jobs back to every part of the country.”

If you look at the overall picture, the UK economy has had a fairly good run so far this year, particularly when compared to the economic stagnation of 2023.

So says Ellie Henderson, economist at Investec, who told clients:

Providing the 30 October Budget does not include any major curveballs, there are reasons to be optimistic moving forward, too.

The household balance sheet is looking healthy; not only are nominal income gains outstripping inflation, implying real household income growth, the saving ratio is still elevated, at 10% in the last reading, giving room for spending growth to exceed real income growth if households so choose.

Meanwhile on the business side, investment should be supported by lower interest rates, as the Bank of England looks to continue its easing cycle.

On such business investment, PM Starmer and his team aim to push this lever of growth next Monday, with the UK hosting its first International Investment Summit, bringing together up to 300 industry leaders with the aim of boosting investment into the UK.

In the City, shares in supermarket group J Sainsbury have dropped almost 5% after its largest shareholder sold part of their stake.

The Qatar Investment Authority offloaded around $400m of shares in Britain’s second-largest grocer last night, by selling 109m shares to the market.

QIA had owned 335m shares, worth around $1.2bn (or over £900m).

Back in 2007, Qatar launched a £10.6bn takeover approach for Sainsbury’s, worth 600p per share, but abandoned the bid after the increased cost of funding in the credit crunch.

Today, Sainsbury’s shares are down to 275p, a two-month low, valuing the company at £6.5bn.

While there’s relief that the UK economy grew in August, there’s also concern this morning about the country’s trade deficit.

New data shows that the UK’s total goods and services trade deficit widened by £3bn in the June-August quarter, to £10bn.

The increase was due to higher goods imports.

The Office for National Statistics reports that the UK’s goods deficit widened by £2.6bn to £52.4bn in the three months to August. The trade in services surplus is estimated to have narrowed by £400m to £42.4bn.

Yael Selfin, chief economist at KPMG UK, fears that UK exports could suffer in future from protectionism (eg tariffs) and geopolitical tensions overseas.

Selfin says:

“The widening of the trade deficit in the three months to August points at one of the UK’s Achilles’ heels, while rising geopolitical tensions and protectionist measures could accelerate the realignment of supply chains and potentially put further pressure on UK exports in the medium term.”

August’s GDP growth was broad based, with “British brains and British brawn” both contributing to healthy growth, says Nicholas Hyett, investment manager at Wealth Club:

In the crucial Services sector, professional, scientific and technical activities continues to be the key driver of growth – with auditors, lawyers and scientific researchers all reporting a busy month.

In Production manufacturing enjoyed a rebound over the summer, particularly in transport, while infrastructure activity drove a strong result in Construction.

This is all welcome news for the Treasury ahead of the Budget which is expected to see taxes rises, potentially slowing economic activity. It does raise a conundrum for the Bank of England though. The Bank had been eyeing up further interest rate cuts, but the economy doesn’t look like it’s crying out for more monetary support and with inflation expected to accelerate again into Christmas, rate setters might be thinking it makes sense to sit on their hands a little while longer.”