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?
Headwinds
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.
Today’s numbers
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”?
Comment
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.
Notayesmanseconomics's Blog 
hello shaun ,
“The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited”
LoL!
they watch cat videos and dogs having a poo !
There is NO 4th revolution ! its still the dammed 3rd one , automation automation automation !!
the big kicker will be when Finance gets properly automated ……..
and the result is …. already predicted in Sci-Fi
except we’re going the dystopian route ….
Forbin
Hi Forbin
Yes there was some hype in the Davos statement to say the least and your points are true. However there is also some genuine activity as well as this is why I raised it with the Bean Economic Review as otherwise they would count virtually everything! I raised it on Share Radio today as we need to get a grip firstly on what we want to measure and secondly how we actually do it.
Hi Shaun,
I don’t think that this is the 4th
industrial revolution, if it is then GHU.
In my opinion most of peoples
digital contact is made up of trivia with an
element of voyeurism! I think that IT is the
final revolution but we don’t yet fully
understand It’s implications.
Zager and Evans
In the year 5555
Your arms are hanging limp at your sides.
Your legs got nothing to do
Some machine is doing that for you.
JRH
Hi JRH
In many respects I agree as I have just replied to Forbin. But there is some genuine activity in cyberspace etc. and we need to set standards as to what bit we want to count and measure. If we leave it to the establishment they will count pretty much the lot and tell us that we are better off!
Wasn’t it 2525?
Each verse went 1000 years into the future
I think his automated can kicking app (controlling those limp legs)had just knocked it forward a couple of millennia. Twas the policy at the time.
Maybe we can have an economy based on cutting each other’s hair! I would rather we made things though.
Hi Pavlaki,
Douglas Adams as prescient as ever!
These tales of impending doom allowed the Golgafrinchans to rid themselves of an entire useless third of their population. The story was that they would build three Ark ships. Into the A ship would go all the leaders, scientists and other high achievers. The C ship would contain all the people who made things and did things, and the B ark would hold everyone else, such as hairdressers and telephone sanitizers. They sent the B ship off first, but of course the other two-thirds of the population stayed on the planet and lived full, rich and happy lives until they were all wiped out by a virulent disease contracted from a dirty telephone.
http://hitchhikers.wikia.com/wiki/Golgafrincham
This is not my work but …….*
So what do we do with the “B” Ark people?
I have consulted colleagues better informed than I on this topic and the following was one of the more creative suggestions.
Hire another “B” Ark person to have meetings with them. Demand that accurate minutes are kept and that they should meet at least twice day until the problem is resolved.
Define a circular problem similar to the following:
“we are concerned about internet attacks on our systems. Only an untrustworthy person would hack a system. The fact that hackers are untrustworthy is proof of this. Please determine how we can identify untrustworthy people to prevent them from hacking our systems.“
That should keep them busy for a while.
In addition to the working group on this problem, be sure to establish at least 2 or 3 oversight and governance groups to monitor and check on progress. For good measure be sure to invite Gartner for additional advice..
Kinda sums the EU , Government and a lot of companies I have worked for….
Forbin
copyright * Infinite Shades of Grey
Hi JimM
Thanks for the reminder of this gem…. 🙂
Pavlaki,years ago I was in the Lebanon and couldn’t believe the amount of barbers in some towns eg Ba’albeck.
I often wonder about whether the UK has the same with coffee shops.
I used to visit the Lebanon often in the 70’s and early 80’s – during and after the war but before Hamas and the fundamentalists arrived. I really enjoyed going there are the food was some of the best I have ever eaten. Great memories! The place with an explosion of coffee shops is Athens as desperate but entrepreneurial Greeks open them on almost every street corner. The good news is that you can finally get a decent coffee in Athens! You have to wonder though if they are making much profit or even enough to live on.
And now SSE have announced that they’re cutting gas prices by 5%. Those bastards! Don’t they know that’s going to reduce our GDP even more?
Seriously, when GDP is so badly thought out that lower prices always register as bad, what hope is there for economic policy based upon it? I know there’s lots of other elements too but who really thinks politicians can follow the ins and outs of them when the vast majority of economists can’t?
We are living in an irrational system hoping for rational outcomes. Not going to happen. And while we hope for the impossible, the unscrupulous are free to bilk the system to suit themselves.
actually I suprised the GDP fantasy figure is so low …..
can’t they impute some more sex ?
or have they been puffing too little pot?
if inflation figures in then perhaps they should use RPI+H
with everything but housing excluded – that RPIH would be , what , 9% or more , we’d all be rich!! hur! hur !
Anyway we dont want GDP to go up as we’d have to pay more to the EU ……
Thats like using you gross salary to spend forgetting you have to pay taxes …… ie your income is way lower
Fantasy !
Forbin
It is inevitable that services will become a bigger part of the economy where software and financial services are playing a bigger role in our everyday lives.
To me it doesn’t matter what area any UK output is categorized in as long as it improves our balance of payments. At the moment our industry ‘family silver’ is continually being sold to overseas businesses to balance our current account. At some point this must lead to a balance of payments crisis.
can we really employ 99% of the people to service the top 1%?
oh silly me ……
its called fuedalism ….. Dune style
Forbin
Hi Forbin
Just to reply to the Dune reference I have a wry smile as I walk up to where Share Radio is based because it is in Chapter House. There is no sign of the Bene Gesserit but then of course there wouldn’t be…
I’ve already offered my solution to Osbourne and that’s to start including imputed taxi fares for journeys completed in your own car.
Simples innit?
They should pay me a few hundred grand a year and I’ll play solitaire at the BoE and leave rates untouched.
How do average Joe’s get on the inside down there.?
Hi Dutch
I am sorry but solitaire is much too active for the Bank of England! As to how to get in well if I manage it I will let you know. But so far I have seen quite a few instances which could have come out of Yes Minister in areas I have looked at.
What about including imputed childcare costs for people who look after their own babies/toddlers and imputed cleaning costs for people who clean their own house; imputed gardening costs for those who tend their own gardens? The list is endless!
Hi Shaun
As you say GDP is growing but, as you also say, GDP per head is stagnant. The reason we are growing is because there are more people here, something which many are now beginning to regard as a mixed blessing.
Also, as we are running a PSBR of, what, 60-70 bn, a resurgence in private debt, a reduction in the savings ratio and with IRs still stuck at emergency levels is this really surprising and: is it sustainable? I think not and we (continue to) live in a fools paradise, despite what the MSM cheerleaders say.
With regard to the 4th Industrial Revolution I think it’s coming whether we like it or not and we should embrace it but I’m afraid it will disrupt society and many vested interests but these factors will not, in the long, run prevent it; they will merely slow it down.
Hi Bob J
I agree entirely on the embracing of the 4th Industrial Revolution as we badly need change. Yesterday’s appointments to the FCA and today’s farce where the 6 brokers accused of LIBOR rigging were let off by a jury show the need. Fair play to the jury (and a reinforcement of the need for them to continue) but the Serious Fraud Office has been ineffectual my whole career.
As to the economy we badly need something new I think.
The Serial Fraud Office.
Hi Shaun.
I saw the start of the digital revolution during my first real job working for the Government in the nuclear industry. For the next 20 years I saw the steady application of computer technology in commerce, in airlines and primarily in manufacturing. Then came the PC; starting as a hobby, but soon providing everybody with email, Microsoft Office, and Internet access. Organisations began to swap their mainframes for PCs. But now the focus has shifted to personal use rather than business use. Witness the meteoric rise of Apple in the last 10 years – a company not known for the use of its products in business. Now hoards of us just want to be permanently connected through email, instant messaging, the Internet and social media…. And everything has to be ‘smart’ today. We’ve just bought a smart washing machine!
Sometimes I think it’s all a gigantic waste of time. But Tim Cook is laughing all the way to the bank.
We’ve come a long way in 50 years, but I would call it evolution not revolution.
This makes me feel old, but if you had told me in 1980 that in about 30 years you could have a communication device you could keep in your pocket that could also take and store thousands of photos, films, music, be a video phone and allow you to access information about every conceivable subject, I would have been amazed. Given my mate’s new car already has technology that parks itself and takes control if it thinks you’re going to crash, then at this rate of progress driverless cars, pilotless planes, crewless ships and will be commonplace in 30 years from now. Thousands of modern careers will be redundant in a generation and it’s hard to see how society can adjust that quickly.
Hi Eric
I just wanted to reply that I need a new TV and yes I have been perusing the smart TVs…