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U.K. 2Q Current-Account Deficit Widens; GDP Growth Revised Up

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UK Consumers
  • Current-account gap climbs to 5.9% of GDP from 5.7% in 1Q
  • GDP growth revised to 0.7% on the back of services, investment

The U.K. current-account deficit widened in the second quarter as the trade gap hit a 2 1/2-year high and Britain continued to record heavy outflows of investment income.

The shortfall — the difference between money coming into the U.K. and money sent out — was 28.7 billion pounds, the Office for National Statistics said on Friday. That equates to 5.9 percent of gross domestic product, up from 5.7 percent in the first quarter. The deficit hit a record 7 percent at the end of last year.

Brexit has thrown the current-account gap into the spotlight, with some analysts warning that foreign investors may be less willing to finance the shortfall by buying U.K. assets. Mounting concern has contributed to the sharp fall in sterling since the June 23 decision to leave the European Union.

Separately, the ONS said the economy grew 0.7 percent in the second quarter, slightly more than the 0.6 percent previously estimated. Consumers stepped up their spending and business investment increased, offsetting the biggest drag from net trade since 2013.

At 5.4 percent of GDP last year, the U.K. current-account deficit was double that of the U.S. Bank of England Governor Mark Carney has warned of a reliance on “the kindness of strangers” and credit-rating agencies highlight the gap as a key weakness. Trade Secretary Liam Fox added his voice on Thursday as he chided British companies for exporting too little.

Sterling Hopes

The total trade deficit widened to 12.7 billion pounds in the second quarter, or 2.6 percent of GDP. The gap between what British investors earn on their foreign investments and what foreigners earn on their investments in Britain narrowed but still totaled almost 10 billion pounds. The deficit on secondary income, which covers remittances and government transfers, widened.

There are hopes that a more competitive pound will help boost demand for exports and reduce spending on imports. Economists surveyed see the current-account deficit narrowing to 4 percent of GDP in 2017 from a record 5.5 percent this year.

The GDP figures paint a picture of an economy that held its own prior to the Brexit vote and there are signs of continuing resilience.

In July, services rose by 0.4 percent, boosted by retail sales, the film industry and computer programming. Industrial production rose 0.1 percent in the same month and construction stagnated. Together with business surveys for August, it suggests Britain is on course to avoid contraction in the third quarter.

No Shock

“This fresh data tends to support the view that there has been no sign of an immediate shock to the economy, although the full picture will continue to emerge,” said ONS statistician Darren Morgan.

The revision to the second quarter was due to services and investment being higher than previously estimated. Business investment rose 1 percent instead of 0.5 percent and services grew 0.6 percent, up from 0.5 percent. Net trade knocked 0.8 percentage points off growth as exports fell 1 percent and imports gained 1.3 percent.

GDP grew 2.1 percent in the second quarter from a year earlier. On an annualized basis, it expanded 2.7 percent, compared with 1.4 percent in the U.S.

Economists expect a sharp slowdown next year as Brexit hits hiring and investment and accelerating inflation saps consumer spending. Real disposable income grew 0.6 percent in the second quarter while the savings ratio fell to 5.1 percent from 5.6 percent.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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oil-rig

Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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