After spending the earlier part of this week analysing the economic travails of some of the Euro area it is comforting to return to the UK economy and observe this. From the National Institute of Economic and Social Research (NIESR) yesterday afternoon.
Our monthly estimates of GDP suggest that output grew by 0.7 per cent in the three months ending in September after growth of 0.8 per cent in the three months ending in August 2014.
As you can see the mini-boom continues although they are hinting that the pace of expansion may be slowing. Although some care is needed as the NIESR seems to be adopting the habit of revising back data upwards at the moment. An example of this is shown by this August which was originally reported at 0.6% and has been revised up to 0.8% now, indeed July has also been revised up from the 0.5% reported last month to 0.7%.
Much less well publicised by the NIESR is quite a considerable change in the pattern of the credit crunch according to it. The accompanying chart now has the various revisions to UK economic output included in it and we now passed the previous peak after 66 months rather than 77 months. That should have been worth a mention I think. It does not change the fact that this has been the slowest recovery in the modern era but does change the scale of it.
The situation here was much better than the one observed only yesterday in Germany. From the Office for National Statistics.
Total production output increased by 2.5% in August 2014 compared with August 2013. There were increases in two of the main sectors, with manufacturing output being the largest contributor, increasing by 3.9%.
As you can see not only has UK production risen over the past year but it has been driven by the manufacturing sector. Somewhat ironically considering the debate on this issue at the time of the Scottish independence election oil production dragged the numbers lower.
The subsector with the largest contribution was the extraction of crude petroleum & natural gas, which decreased by 6.9%.
Whilst we are in the middle of a positive phase it is also true that we still have a long way to go in this sector of our economy to get back to where we were.
Compared with the pre-downturn GDP peak in Q1 2008, in the three months to August 2014, production was 9.6% lower and manufacturing was 4.4% lower.
This situation has had an impact on the value of production in our economy overall.
Consistent with Blue Book 2014, the production industries account for 14.6% of the output approach to the measurement of gross domestic product (previously 15.2%).
So the drift towards our economy being ever more dominated by the service-sector goes on. Sometimes the march is halted but it never seems to be pushed backwards.
What about agriculture?
Tucked away in the figures I noted that UK agricultural output is some 9.3% lower than the pre credit crunch peak and as of the second quarter of this year was still falling.
However, output decreased by 0.3% in agriculture, forestry & fishing.
Do readers have a good explanation of why this has taken place? If it was left to me I would be pushing for us to expand our agricultural output.
These continue to be very strong.
Today (6 October), SMMT has announced that 425,661 new cars were registered in September. Not only does this make it the second-largest month of the year in terms cars registered – beaten only by March – it also makes this September the biggest for 10 years.
The SMMT was quiet this month about one of the factors which have been driving the car market forwards which is access to finance. So let us take a look at the Bank of England’s quarterly credit conditions survey.
The total amount of unsecured credit made available to
households increased in 2014 Q3, and lenders expected a
further rise in Q4. Lenders have been reporting increases in
unsecured credit availability for most of the past two years.
So it would appear that whilst it has been unable to boost credit to small and medium sized businesses the Bank of England’s Funding for Lending Scheme (FLS) has boosted unsecured credit and hence car registrations.
What about house prices?
For all the talk about cooling they still seem to be increasing at a substantial rate as this morning’s figures from the Halifax show.
House prices in the latest three months (July-September 2014) were 2.7% higher than in the previous three months (April-June 2014).
Prices in the three months to September were 9.6% higher than in the same three months a year earlier. This was similar to August (9.7%) and lower than July’s 10.2%.
However the Halifax also added this to its house price report.
Annual house price inflation may have peaked around 10%. A moderation in growth looks likely during the remainder of 2014 and into next year as supply and demand become increasingly better balanced.
Of course there is likely to be an element of both special interest pleading and moral hazard in such statements but it is not the only signal of what the group the Scorpions called the winds of change. From the Bank of England credit conditions survey.
After eight consecutive quarters of expansion, lenders
reported that the availability of secured credit to households
fell significantly in the three months to early-September.
However if we move from the rate of inflation in house prices to the level of them there is a clear sign of trouble. The house price to earnings ratio was 4.64 in September 2013 and is 5.04 this September and we know that the Halifax uses a favourable definition to keep it that low.
This looks very much a push me pull me type of situation for the UK. The business surveys (purchasing managers indices) remain positive albeit not as positive as they were. Also the recent falls in commodity and oil prices will give a boost to the overall economy if not the oil and gas sector. Against that there must be a downwards pull from the weakness being exhibited in the Euro area.
At the moment there are more than a few things to be grateful for in the state of the UK economy. However the mini-boom has exacerbated old problems such as the (un)affordability of housing and the balance of payments deficit. These have traditionally applied a brake and sometimes a sharp one to the UK economy. For now one of the ways that this has happened- Base Rate rises by the Bank of England- seems rather unlikely in spite of 2 members of the MPC voting for one. With inflation below target and commodity prices and wage growth weak they seem unlikely to get support especially after these numbers released overnight by the British Retail Consortium.
Overall shop prices reported deflation for the seventeenth consecutive month, accelerating to 1.8% in September from 1.6% in August.
However something rather worrying did happen yesterday if we recall the track record of the International Monetary Fund.
The United Kingdom’s economy is expected to
continue to grow strongly. Demand is becoming
more balanced, with stronger business investment.
Given the IMF’s record which has displayed considerable anti-prescience that is indeed worrying as is this number it adds to its report.
household debt at 140% of gross disposable income remains high
Meanwhile another way out looking at the UK economy comes from the bond markets. There has been a flurry of “turning Japanese” news this morning as the 5 year bond yield of Germany fell to the same 0.14% of Japan. By contrast the equivalent UK Gilt yields 1.6%.