Today we find out whether the UK economy is seeing a continuation of the fading of its economic growth spurt. The trend up to now was summarised in the January Economic Review.
GDP grew by 0.4% in Q3 2015, revised down from the previously published estimate of 0.5%. Growth averaged 0.5% during the first three quarters of 2015, following growth of 0.7% per quarter during 2014…… this represents something of an easing in GDP growth compared to 2013 and 2014. ………GDP is now 6.1% higher than its pre-downturn level.
As you can see we have seen a fading although the good news is that the growth spurt pushed us above the pre credit crunch peak in aggregate terms. Although a bit less than 1% per annum are levels associated over time more with the record of Italy and Portugal.
If we move to the individual level then we did cross a Rubicon in 2015 and it was welcome. However you can see below why it is argued that the total economic growth seen does not tell the full story.
GDP per head increased by 0.3% over this period compared to the previous quarter and was 0.3% above its pre-downturn level, having initially surpassed it in Q2 2015.
Per person we have only just pushed our nose ahead of where we were pre credit crunch so that in this respect the last seven years or so represent stagnation. On this road to nowhere we see where there is dissatisfaction with the economic growth seen. The good news is that we have to opportunity to advance to new heights but we need to keep growing. Also I am typing this before the release and felt the need to point this out on Twitter.
Don’t forget that UK GDP is due at 9:30 am today and that some people have known it for the last 23 hours
It is a sad indictment of the times that the UK ONS (Office for National Statistics) is investigating the issue of some people being more equal than others in this regard.
The good news
In terms of economic output the UK is seeing two influences push momentum forwards. The first is something that I described just under a year ago on the 29th of January 2015 as I pointed out that disinflationary pressure would boost real wages and help consumption. We have seen more good news on this front only this morning. From the BBC.
The UK’s second biggest energy supplier SSE is to cut its standard gas tariff for domestic customers by 5.3%.
SSE is the second of the big six suppliers to announce price cuts this winter.
If we note petrol and diesel prices at the pump they fell again last week with petrol now some 4.9 pence per litre cheaper than a year ago and diesel some 12.2 pence cheaper. So the heat is still on in this area although for perspective I did have a wry smile when an American reported that she had just paid per gallon what we pay per litre! Also whilst the gas price cut is good news it is also true that it starts at the end of March as in when you would expect consumption to be lower after the winter peak.
Next is the ongoing influence of the Bank of England Funding for (Mortgage) Lending Scheme. An example of this was highlighted last week by This Is Money.
The lowest ever five-year fixed rate mortgage is back. HSBC kicked off the New Year with a bang with the return of its 1.99 per cent five-year fix.
That particular one requires a 40% deposit so let us look at the other end of the scale. From Mortgage Strategy
Selfcert.co.uk has bypassed an FCA ban on self-cert mortgages by setting up in Prague and using the ecommerce directive to write business in the UK.
It is offering a tracker loan set at 2 per cent above base rate and will lend up to £500,000 at 85 per cent loan-to-value with fees of around £600.
There was so much demand that its website crashed! Plenty of work there for the new head of the FCA (Financial Conduct Authority) Andrew Bailey (please see yesterday’s article) as it claims to have banned self certification mortgages. It all feels a bit like when The Terminator declares “I’m back” doesn’t it?
In essence this is the international environment which the US Federal Reserve described last night like this.
The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.
In other words they are worried by them and such thoughts led to this.
economic growth slowed late last year.
The UK faces many of these issues although ut is also true to say that our nearest neighbour the Euro area has perked up over the past year. The problem though is that we have had a consistent problem with our trade position where if we were a bath the plug never fits and frankly sometimes we might wonder if there is a plug at all. From the January Economic Review.
This has largely been driven by the absence of growth in the export of goods, which in Q3 2015 were 1.7 percentage points lower than the average level in 2008 (as a percentage of nominal GDP), while the import of goods increased by 1.1 percentage points over the same period.
This problem in the good sector is in contrast to our performance in the services sector which is far better but being smaller has been unable to offset it.
Firstly let us welcome the fact that we continue to see economic growth in the UK as we need it.
GDP is estimated to have increased by 0.5% in Quarter 4 (Oct to Dec) 2015 compared with growth of 0.4% in Quarter 3 (July to Sept) 2015.
We need to take care with the 0.1% rise as it is well within the margin of error but one of the themes of this website has been illustrated by the detail.
Services increased by 0.7%, contributing 0.52 percentage points to Quarter 4 (Oct to Dec) 2015 GDP growth
Yes it was the growth in fact more than it which I shall return to in a moment but we saw growth in all service sectors with a particular change shown below.
Growth in business services and finance increased from 0.6% in Quarter 3 (July to Sept) 2015 to 0.9% in Quarter 4 (Oct to Dec) 2015.
It must now be 80% of our economy and the official number of 78.6% from 2012 is sorely in need of an update. We should welcome out success in this area even as we wonder what happened to the “rebalancing” of former Bank of England Governor Mervyn King and the “March of the Makers”
In contrast, production decreased by 0.2%, while construction output decreased by 0.1%…….. manufacturing growth was flat, following a decrease of 0.4% in Quarter 3 (July to Sept) 2015.
If we step back from the detail for some perspective then we find that we have seen a slowing of economic growth overall.
GDP was 1.9% higher in Quarter 4 (Oct to Dec) 2015 compared with the same quarter a year ago. GDP in 2015 as a whole increased by 2.2% on 2014……This compares to an increase of 2.9% between 2013 and 2014.
Is 0.5% growth per quarter the “new normal”?
There is good news here as the UK continues to grow albeit with something of a dip on the previous heights. But as we look at the way that recent economic growth has been driven pretty much entirely by the service sector let me quote this. From the World Economic Forum.
Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.
Any revolution poses its challenges so let me offer two. Firstly what do we want to do and what are our objectives? Secondly we have the issue of how we measure all this as we switch from actual products which can be measured objectively towards areas where this is much harder? The establishment want the numbers to surge whereas as I replied to the Bean Economic Review we need to think and consider as much as cheerlead. I will welcome your thoughts on this as ever.
For those of you who prefer to listen to economic analysis I will be on Share Radio after the 1 pm news today.