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UK economy in ‘a lot better shape’ than bleak figures suggest, fund manager says

LONDON — The U.K. has thus far avoided a widely anticipated recession, and the signs from the business world are that the economy may be holding up better than feared, according to veteran Schroders fund manager Andy Brough.

Figures published earlier this month showed that the U.K. GDP contracted by 0.5% in December, as the economy flatlined over the final quarter of 2022 to narrowly avoid a technical recession.

The Bank of England projects that the British economy has entered a shallow recession in the first quarter of 2023 that will last for five quarters, however, as energy prices remain high, and rising market interest rates restrict spending.

But Brough, head of the pan-European small and mid-cap team at British asset manager Schroders, said that his interactions with businesses suggested greater resilience than the weak GDP figures and official forecasts imply.

“The consumer’s still out there spending. Every number is a surprise to the market, isn’t it? I walk up and down the streets or cycle into work, [and] there’s still lots of people out there, and people are still buying houses, still buying cars, they’re still shopping,” he told CNBC’s “Squawk Box Europe” on Wednesday.

“There’s seven wonders of the world, and the eighth wonder of the world is how GDP is calculated,” he said, adding that he was “surprised” by the scale of the December contraction.

In their latest earnings reports, British banks mostly increased their loan loss provisions — money set aside to insure against customers defaulting on their debts.

Brough advised the market against reading this as a sign that tightening financial conditions are heightening default risks among U.K. consumers, and said that companies he is speaking to are actually “doing okay.”

“Underneath companies’ profitability x-minus today, we’re seeing pretty good dividend increases, pretty good earnings statements, so, underlying, I think the economy is in a lot better shape. And it’s very easy to alight on something like a Lloyds Bank
and the other financial companies and say things are tough, but actually it’s a mechanical calculation, this provision.”

Lloyds Bank on Wednesday announced a £2 billion ($2.42 billion) share buyback and increased its final dividend to 1.6 pence per share. It was the latest in a string of major U.K. businesses to report strong fourth-quarter earnings and boost capital returns to shareholders.

‘Signs of life’ in business investment
Uncertainty over future relations between Westminster and Brussels have hammered business investment since the U.K. voted to leave the European Union in 2016, in turn hampering productivity expansion and adding to the direct costs of Brexit on the U.K. potential growth.

Real business investment in the fourth quarter of 2022 was only fractionally higher than before the Brexit vote, but recent trends look more hopeful, according to Kallum Pickering, senior economist at Berenberg.

“Albeit from a low base following the pandemic-related slump, real business investment increased by c10% during 2022 — with a 4.8% [quarter-on-quarter] rise in Q4 alone,” Pickering said in a research note on Tuesday.

“It remains an open question whether momentum can remain strong in the coming quarters as firms brace against the headwinds of tighter financial conditions and sky-high energy costs, but firms have both the need and the means to further step up investment.

He added that the outlook “appears favourable,” if political uncertainty continues to ease — with Prime Minister Rishi Sunak’s government moving away from the populism of fallen predecessors Liz Truss and Boris Johnson, while the main opposition Labour Party shifts to the center under “reliable pragmatist” Keir Starmer — and the U.K. avoids a bad recession.

Pickering also highlighted that U.K. businesses are “lacking confidence, not opportunity,” as the weakness in business investment cannot be attributed to concrete factors, such as difficulty financing capital spending or a lack of viable technologies that may help production processes.

“Non-financial corporations are sitting on deposits equivalent to c23% of annual GDP. Non-financial corporations’ debt is low too. At c75% of GDP in late 2022, debt is at late-1990s levels, well below the GFC peak of 103% in 2009 and far below the current Eurozone level of c145%,” he highlighted.

“With its paltry productivity performance in the post-GFC era — output per worker rose by just 5.5% between Q2 2008 and Q3 2022 — the U.K. is desperate for a wholesale uplift in its capital stock.

In the six years of “noise and chaos” since the Brexit vote, the diminishing risk of a retaliatory trade confrontation with the EU should offer comfort to U.K. businesses and financial markets, and Pickering suggested better times are ahead.

“It is normal for politics to go awry from time to time and for the economy to suffer as a result. Before the UK’s latest wobble, this last happened in the 1970s, but once things started to get back on track by the early 1980s, economic performance improved rapidly,” he said.

“With any luck, the worst of the political uncertainty that has held back business investment since the Brexit vote is coming to an end.”

With business investment accounting for around 10% of the U.K. GDP, a recovery to pre-Brexit-vote growth rates of around 5.5% could add between 5 and 6 percentage points to annual GDP growth over the next few years, Berenberg forecasts.

“Is that feasible? For a while, yes. Facing persistent labour shortages and a host of global supply frictions, U.K. firms badly need to add to domestic capacity in order to meet growing demand,” Pickering said.

“A period of more settled politics in the years ahead can provide a suitable backdrop for them to do so.”

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Where Tech Talent Goes To Thrive

here is a worldwide shortage of digital skills. In a world increasingly reliant on technology, demand for technological skillsets is rising by as much as 50%. Meanwhile, nearly three-quarters of today’s workers don’t feel equipped to learn the digital skills needed by businesses.

The most acute shortage is in advanced skills like programming, especially for new technologies like AI and blockchain.

This demand gives skilled tech workers, entrepreneurs, and leaders the pick of where to base themselves. As cities and nations compete to attract tech talent, what makes these prized individuals choose one place over another?.

Initial Attraction
In a survey of ‘tech migrants’, Boston Consulting Group identified a mixture of short-, medium-, and long-term levers businesses and cities could use to attract talent.

The initial attraction is often brute economics: higher pay and lower taxes. That’s certainly what brings people to Dubai, says Vladimir Vrzhovski, Tech and Digital Lead at Mercer: “Dubai pays about 30% higher than most of the mature tech hubs around Europe and Asia.” It also has a lower cost of living, especially when its 0% income tax is taken into account.

Businesses operating in the city’s free zones – like the tech-focused Dubai Internet City (DIC) and Dubai International Finance Centre (DIFC) Innovation Hub – also benefit from 0% corporation tax. BCG credits the incentive with bringing big names like Amazon, Google, and Oracle to the emirate.

It is an echo of London’s rise to tech prominence, offering tax relief on tech investments via its Seed Enterprise Investment Scheme (SEIS) to funnel the city’s vast pools of finance towards digital businesses.

The presence of blue-chip names affords another major draw for tech talent: opportunities.

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Adding exercise into treatment may reduce substance use, study shows

One key to fighting addiction may be exercise, according to a new study.

Researchers undertook a review of the existing literature around physical activity and its relationship to substance use, and they found that regular exercise was associated with lowered use in about 75% of the studies investigating that question, according to the analysis.

The review, published Wednesday in the journal PLOS ONE, looked at 43 studies with more than 3,000 total participants. In addition to a reduction or cessation in substance use, the studies also found improved markers of physical health and decreased depressive symptoms, the study said.

“People think that during treatment people should only do psychotherapeutic treatments … but that’s not what we’ve seen in our study,” said lead study author Florence Piché, a doctoral student and researcher at Université de Montréal in Canada. “It’s very beneficial to do physical activity in addition to the treatments.”

There are limitations to the findings. The review found that most of the studies the researchers examined had a high risk of bias, meaning more research is needed to confirm their findings, said Dr. Aaron Kandola, research fellow at Medical Research Council Unit for Lifelong Health and Ageing at University College London.

The studies were also not directly comparable enough to build a comprehensive and generalizable understanding of the relationship, Kandola said in an email. Kandola was not part of the research.

However, the findings were still significant and useful, he added.

“Substance use disorders are a major public health problem lacking low-cost, evidence-based solutions,” he said, adding that substance use disorders are worsening in many high-income countries — including the United States.

Finding more accessible solutions to this disorder is especially important because it often occurs with other mental health problems such as depression and anxiety, which disproportionately affect people with fewer socioeconomic resources and areas with higher deprivation, he said.

Physical activity may be a useful and accessible part of a treatment plan for substance use disorder, said Dr. Mark Smith, professor of psychology at Davidson College in North Carolina. Smith was not part of the research.

“I think there’s now a sufficient amount of data to indicate that various forms of physical activity and exercise are generally effective at reducing substance use in individuals seeking treatment,” he said.

What exercise does
Most people can benefit from engaging in physical activity, Kandola said.

One benefit the studies found is improvements in physical health such as cardiovascular endurance or muscle strength, Smith said. And although that may not be the primary goal of the research, he said this finding is important because it shows the physical activity is doing its job to promote physical health.

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Blood sugar drug tirzepatide also leads to substantial weight loss in diabetes patients, Eli Lilly says

There’s more evidence that the injectable drug tirzepatide helps people with diabetes lose weight as well as control their blood sugar, according to the drug’s manufacturer, Eli Lilly and Company.

In a new study, more than 900 adults with obesity and diabetes took the drug for a year and five months, and those on the highest dose lost an average of 34 pounds, or nearly 16% of their starting weight. It also helped people reduce their blood sugar, the company said in a news release. The data has not yet been peer-reviewed or published in a medical journal.

“We have not hit 15% in any other phase three trial for weight management in this type two diabetes population,” said Dr. Nadia Ahmad, an associate vice president at Eli Lilly and medical director of obesity clinical development for the company.

Ahmad said the company was pleased with these results, given how hard it is for people with type 2 diabetes to lose weight.

Tirzepatide is currently sold as Mounjaro and approved to help people with type 2 diabetes control their blood sugar.

Lilly says it will use the new study, along with results from an earlier study of weight loss in people without diabetes, to ask the US Food and Drug Administration to fast-track approval for tirzepatide purely for weight loss, which would make it a direct competitor to the blockbuster obesity drug Wegovy.

Plenty of people aren’t waiting for the FDA’s nod.

“I am aware of and I’ve heard, you know, it being sort of used off label for weight loss and individuals who do not have diabetes,” said Dr. Kimberly Gudzune, medical director of the American Board of Obesity Medicine. Gudzune was not involved in the tirzepatide study.

Gudzune points out that once a drug is FDA approved it can be prescribed for any reason a doctor sees as medically necessary.

Tirzepatide, along with several similar types of drugs taken for diabetes, went into shortage last year as success stories posted on social media fueled runaway demand for their weight loss benefits. The shortages made the medications difficult for patients with diabetes to get.

Tirzepatide works by mimicking the action of two different gut hormones. When blood sugar rises after eating, the drug stimulates the body to produce more insulin, which lowers blood sugar. It also slows down the movement of food from the stomach, making people feel fuller for longer. In clinical trials, people who took tirzepatide experienced more nausea, vomiting and diarrhea compared with those who took a placebo injection.

Semaglutide, manufactured by Novo Nordisk, has also been approved as a weight loss medication for overweight adults with at least one associated health problem since 2021. When prescribed for weight loss, it is sold under the brand name Wegovy. When prescribed for diabetes, the injection is sold under the brand name Ozempic.

High demand, coupled with manufacturing problems, threw Wegovy into shortage for much of the last year. That shortage then rippled into shortages for diabetes patients as doctors began prescribing other diabetes medications off-label for weight loss.

There has already been a lot of buzz about tirzepatide’s potential as an obesity medication. In a clinical trial published in the New England Journal of Medicine last year, people who were overweight or obese, but did not have diabetes, lost an average of 52 pounds on the highest dose of the drug, or more than 20% of their starting weight.

“In the last year has been really exciting just to have more tools in the toolbox, so to speak. And tools that, you know, we’re seeing really achieving outcomes that patients for the longest time have been hoping to achieve,” Gudzune said.

If those results hold up in the real world, that would make it the most potent of the injectable weight loss medications.

Indeed, this week Lilly aims to begin a study that will test Mounjaro against Wegovy head-to-head in 700 participants at 61 sites in the United States and Canada, according to The study will conclude in February 2025.

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