Today is the day that the Bank of England Monetary Policy Committee meets and votes on what to do next. Us mere mortals do not get to know the result until midday tomorrow which means sadly that there is plenty of scope for some to be more equal than others over the next 24 hours or so. Also next year they plan to switch to 8 meetings a year rather than twelve so I hope that they reduce the lectures on UK productivity!
Much has happened this week alone in terms of UK data but first let me point out a change in emphasis from Bank of England Governor Mark Carney. from the 29th of September.
The combination of the weight of scientific evidence and the dynamics of the financial system suggest that, in the fullness of time, climate change will threaten financial resilience and longer-term prosperity.
Yes around Forward Guidance 5.0 as Governor Carney moves to something which cannot go wrong in his five-year term! There was no repeat of his interest-rate rise mantra although something from those speeches was borrowed.
While there is still time to act, the window of opportunity is finite and shrinking.
Just as a reminder here is an example of the mantra from his Mansion House Speech on the 12th of June 2014.
There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect.
Unless he can avail himself of the services of Dr.Who and his TARDIS those hints and promises were unfulfilled.
Is the UK economy slowing?
This is a question the Bank of England will be debating so let us get straight to the latest business surveys on the UK economy. First manufacturing.
The performance of the UK manufacturing sector remained lacklustre in September, rounding off one of its weakest quarters during the past two years. The generally subdued trends in both output and new orders during recent months filtered through to the labour market,
So the initial report disappointed as we awaited the crucial data for the much larger services sector.
The dominant UK services sector continued to experience a slowing rate of growth at the end of the third quarter,…. Total business activity rose at the slowest pace since April 2013, as did the volume of incoming new work.
Not inspiring to sat the least and a strong construction reading of 59.9 was unable to prevent this being the conclusion.
The survey data indicate that GDP growth slowed to 0.5% in the third quarter, but that the economy is entering the fourth quarter at a pace down to just 0.3%.
Ouch! Not what the Bank of England or any of us would have wanted to hear/read as we mull how much closer Andy Haldane has moved to voting for a Bank Rate cut.
The Official Output Data
This was released this morning and it continued a recent series of disappointing and indeed poor numbers for manufacturing.
Manufacturing output decreased by 0.8% in August 2015 compared with August 2014. The largest contribution to the decrease came from the manufacture of machinery & equipment not elsewhere classified, which decreased by 13.0%.
So on an annual basis it contracted rather than grew and this was in spite of a month on month increase of 0.5%. This leaves us mulling this number and how long it will take us to regain such heights.
In the 3 months to August 2015, production and manufacturing were 9.4% and 6.5% respectively below their figures reached in the pre-downturn peaks.
Actually the production numbers were much better but there is a twist that in some ways is unexpected.
Total production output is estimated to have increased by 1.0% in August 2015 compared with July 2015……Total production output is estimated to have increased by 1.9% in August 2015 compared with August 2014.
The twist comes from what has driven this. Below is an annual comparison.
with mining & quarrying having the largest contribution, increasing by 17.7% and contributing 2.2 percentage points to total production. This was the largest increase since May 1994 when it rose by 23.7%.
So we have 2.2% of a 1.9% rise explained by what is in essence North Sea Oil & Gas so the rest of our industrial production was singing along to Dire Straits.
He wrote me a prescription he said ‘you are depressed
But I’m glad you came to see me to get this off your chest
Come back and see me later – next patient please
Send in another victim of Industrial Disease’
I wondered about the numbers as the oil price is of course much lower than a year ago so I asked the Office of National Statistics directly. There are two main factors at play here. Firstly UK gas output has pushed higher. Secondly oil output is being compared to last year when there were major shut downs in what is a 3 year cycle for them, also this years summer maintenance shutdown has not happened yet. So it is being compared to what were depressed levels back then particularly compared to February and March.
Oh and some may think this is an apt summary of the state of play!
an increase in water supply, sewerage & waste management output, which increased by 6.0% and contributed 0.5 percentage points to total production.
Inflation Inflation Inflation
Or perhaps not if we listen to the British Retail Council this morning.
Overall shop prices reported deflation of 1.9% in September from a 1.4% decline in August…Food reported annual deflation of 0.5% from a 0.2% rise in August…..Non-food deflation accelerated further to 2.9% from 2.4% in August.
As volumes are rising then it is disinflation and not deflation but it would appear that not only are prices falling but they are falling more quickly than they were.
On the subject of inflation I noted this from the Guardian earlier this week and can due to organising matters for my late father in February vouch for some of the numbers.
The average price of a funeral now stands at £3,702, up £140 (3.9%) on the 2014 figure of £3,562, life insurer Royal London said in its latest National funeral cost index.
However some care is needed as claims that it is not measured are inaccurate as the cost of a basic funeral/cremation is in both CPI and RPI. One area where I was caught out yesterday was in using the London Tube – it was too wet for a Boris Bike- when I discovered that my Oyster Card was broken and that it costs £4.80 for a single ticket in Zone One now.
As you can see from the data above there are hints of a slow down in the UK economy and that disinflationary pressure is still present. The slow down seems to be something which is happening much more widely than just in the UK as September looks to have been a bad month for the world economy. What of course we do not know is how long-lasting it will be and whether it is merely a feature of a mature growth spurt or an oncoming recession? Also should the oil price continue its recent rise to above US $52 in Brent Crude terms we will see more inflation but less of a push to output.
I do not know about you but I think that the current crop of Bank of England policymakers will not be voting for a rate rise anytime soon as their chance was missed. Indeed as I hinted at earlier Andy Haldane may be singing along to Donna Summer.
I’ve got my finger on the trigger
Except it would be for a Bank Rate cut.