The UK economy contracted by 0.2% in the second quarter of this year. Early indications from the Purchasing Managers Index (PMI) surveys did point to a slowdown in growth but expectations of growth were still positive, albeit moderate of around 0.1-0.2%. The latest figures did surprise on the downside, which is why Sterling took a hit and fell to its two-year low against the dollar. Sector breakdown reveals the service sector continues to post no growth, the sector has not grown since February this year. Both manufacturing and construction output fell.
At the moment the performance of the UK economy is relatively mixed and erratic largely due to businesses stockpiling ahead of Brexit. Looking ahead, the next two quarters at least are expected to be marked by the uncertainty surrounding Brexit, but ironically the Brexit deadline may well save the UK economy from a technical recession as businesses are likely to stockpile again ahead of the October deadline. But it isn't all Brexit, global growth has also slowed, especially in Europe with growth of 0.2% in Q2 from 0.5% in the previous quarter. Downside risks have risen including escalating trade tensions which have dented sentiment and slowed down investment.
The unemployment rate edged upwards to 3.9%, this is the first time since the summer of last year. Since the EU referendum the labour market has held up well in contrast to some surveys. However, this has been largely down to businesses opting to hire staff instead of committing to long-term investment as decisions like those are relatively easy to reverse during difficult times.
The number of vacancies has been falling since early 2019. The latest statistics from the Office of National Statistics show there was an estimated 820,000 vacancies in the second quarter, 20,000 less than the previous quarter. This marks the sixth consecutive fall on the previous three months. Of the new vacancies 16.8% were in the human health and social work sector. The vacancy rate which essentially indicates staff shortages, for many of the sectors is high, furthermore job-to-job flows are almost reaching pre-financial crisis rates which means businesses are having to compete for staff in the already limited pool of labour.
The strength of the labour market has continued to translate into good occupier activity, in particular for Central London. In H1 2019 Central London take-up reached 5.9m sq ft, in line with the long-term H1 average. Occupiers are moving forward regardless of the economic uncertainty. July take-up has been extremely good reaching 1.4m sq ft, this is up 78% on July 2018. Three deals over 100,000 sq ft were transacted in July, the largest of which saw BT Group acquire 328,000 sq ft at One Braham, E1, providing a major boost to July take-up.
Looking ahead, with the diminishing development pipeline limiting supply, good performance in the occupier market is likely to continue for the year. Occupiers are aware of the increased competition to secure the best possible space and acting ahead of lease events, which in certain submarkets is reflected in rental values. This increases the likelihoods of pre-lets going forward giving assurance to developers that their projects are viable. Alternatively while the occupier market holds up, uncertainty continues to impact the investment market, with H1 2019 volumes reaching £5.2bn, 39% below the same period last year and almost 50% below previous H1 peak seen in 2015.