12 thoughts on “The Good,The Bad and The Ugly of the UK economy

  1. ‘ However it comes with a familiar kicker and it is one that I have regularly warned about. If you pump up an economy via the housing market then you see a boost to consumption which tends to pull in imports. We have traditionally struggled to export more to compensate for this. ‘

    It says a lot that members of the public have to frequent relatively obscure-and hopefully for not much longer- corners of the interweb like to read this sort of analysis.

    No offence Shaun,it’s a shattering indictment of our craven journalistic establishment.

    It screams out to me and yet when you watch the BBC you have the parade of so called journalists reporting the Nationwide house price index as if our lives depended on it-oh,I forgot,they do these days.

    Also Shaun,this
    ‘The UK has run a combined current and capital account deficit in every year since 1983, and every quarter since Quarter 3 1998.’

    If you’d shorted Sterling lgoically,then you’d have been hosed many years ago.But as a number of your regular commenters point out,this can’t go on forever.At some point Sterling will get hosed and noone will have seen it coming.

    Luckily we have Gordon Brown on the Bench if we need the world saving again.

    • Hi Dutch, there’s a little more to it than straight forward income .

      You should also look at the Net International Investment position which improved some £119 billion in the last quarter which is still a negative 65.9 billion and that’s bad. I am pointing out that the Net International Investment position needs to be considered too. I haven’t the time to look up the numbers but it may be due to this number that sterling hasn’t already gone under and may not go under for many years to come if the figure improves further and becomes positive.

      • Hi ExpatInBG

        Yes they do although you have to read further down the balance of payments report than what are usually called trade numbers. They are captured by the Primary Income Account which is part of the current account.

        “Credits refer to earnings on UK assets abroad, and debits for earnings made by a non-resident enterprises on assets held in the UK”

        So we get a capital gain then of course an imputed rental loss which was £2 billion in 2014 so it impacts on GDP as well. Care is needed though as they have just got a full data set for 2013 so much can change……

    • Hi Dutch

      One of the relationships which has broken down in the credit crunch era is that between various fiscal positions and bond yields. If you had asked bond traders a decade ago to look at the PSBR and UK National Debt now and predict Gilt yields they and indeed I would have been hopelessly wrong! Extraordinary times indeed…

      In fact 2016 has seen a bull market for UK Gilts so far whilst the fiscal position has got worse….

  2. Great blog Shaun, as usual.
    It is a good change to have the new HPI use the geometric mean or Jevons formula at the elemental level. In Canada, the new housing price index has used the geometric mean formula for some time. As you know, the UK HPI is based on hedonic prices calculated from semi-log regressions. So the raw inputs in calculating elemental indices are not actual house prices, they are the predicted values of the logarithms of actual house prices. Take the arithmetic mean of these predicted values and then calculate their exponent. This is the geometric mean of the predicted prices. In this case, the geometric mean formula is not only better, it is also simpler.
    I have mixed feelings about the new HPI going from three-year to one-year weights. The Canadian NHPI has always used city weights based on three years of completions, but then it only relates to new housing, where regional shares are much more volatile than they are in the resale market. If some regions are declining in terms of house transactions, single-year weights pick up on it more quickly. If the single-year weights are implemented, this change should be reviewed some years hence, to verify that it is really an improvement.

    • Hi Andrew

      I will take your word for it in the geometric mean, although if this is accepted practice it does beg the question of why it was not there in the first place. My concern is with the use of the new series i.e that the new average is some £37,000 lower and therefore house are more affordable.

      As I put in the post I too am worried about the one year weights. A period where it was trialled would have helped or why not run both for a while?

  3. Hi Shaun

    There are a couple of things you don’t mention with regard to GDP.

    Firstly net immigration will have improved the figures, something the government will keep quiet about at the moment.

    The PSBR is still very high and is also supporting growth; again something that the government would rather not stress in view of its pretense to austerity.

    The decline in the savings ratio together with increasing personal debt is also bolstering the figures; not good as it makes a bad situation worse.

    You could be forgiven for concluding that the stellar performance is built upon debt and immigration and I don’t think you’d be far wrong.

    Productivity is awful and getting worse and to me we have an economy built on sand; an extractive not a productive economy. The business investment is particularly worrying and I saw some statistics last week that showed the UK as a marked laggard in the introduction of robotics, way below countries like Germany; but, then again, perhaps we no longer have any industry to robotise!

    • Hi BobJ

      We are at least finally seeing improvements in the GDP per capita numbers albeit even now still being behind the total ones. As to productivity I think we are pretty much in the dark about what is happening to it in our ever growing service sector. You think it would bother those in charge but it does not seem to.

  4. Hi Shaun,

    if this is the best we can do then what do we do when recession happens ?

    productivity gains have not been passed onto the workers either

    monies intended for capitalisation have been used for assets bubbles

    indeed theres little we can do , so sit back with some popcorn – gonna be quite the ride later !


    • Hi Forbin

      The UK has made some progress but we will only find out how much when the next downturn hits. The fear is that the aggregate gains are because there are more people. As I have just replied to Bob J we have so little concrete data on the services sector which dominates our economy.

      Meanwhile perhaps some hope for cheaper popcorn as corn prices fell 4.5% today according to the Financial Times.

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