UK GDP is an example of the march of the services and not makers

Today gives us our first full insight into how the UK economy performed in the first three months of 2016. Let me open with a sector which was turbo- charged in that period. From the British Bankers Association or BBA.

Gross mortgage borrowing of £17.1 billion in March was 64% higher than a year ago and the highest borrowing since April 2008 following a reported sharp increase in purchase of buy-to-let and second homes, ahead of the increase in stamp duty on 1 April 2016.

As you can see the pedal had pushed nearer to the metal and if we look to the future we see that we can expect a follow-on effect in the second quarter of this year.

The number of mortgage approvals in March was 20% higher than a year ago, with remortgaging up 25% and house purchase up 14%.

So it was time for the Outhere Brothers in the quarter just gone.

I say, boom boom boom now let me hear you say wayoh

The BBA itself summed up the position as shown below.

A surge in buy-to-let and second home buying ahead of the new stamp duty surcharge in April led to a sharp rise in March’s gross mortgage borrowing as people brought transactions forward.

If we look back to yesterday’s article then one of the last things we need is buy-to-let buying driving house prices even lower and I note that even the BBA is unable to avoid pointing that out.

This has fuelled a hike in house price inflation in the first quarter of this year, with the ONS suggesting in its latest report that annualised increases in house prices were 6.1%. Indeed, the ONS House Price Index points to an even larger house price increases of 7.2%.

Unsecured Lending is rising fast too

Regular readers of this website will be aware that other forms of personal lending have been seeing a boom too. For instance we have tried to peer into the data to see if we can find our more about car loans. Here is the BBA view.

However, there is evidence of a stronger pick-up in lending elsewhere; as mortgage affordability rules have worked through the system, lending has shifted to personal loans and overdrafts as well as to credit cards. The difference between credit card lending and repayments shows that consumers are taking advantage of low interest rates and building their net borrowing . The same is the case for overdrafts and personal loans.

There is a clear issue here as pre credit crunch when mortgage lending was likely to be over the rules then borrowers were “helped” by being given personal loans and the like. It seems as though that might be happening all over again and is a powerful critique of macroprudential policies. In other words whilst the sky may be clear at the altitude of an Ivory Tower down at ground level reality is foggy.

We have seen evidence of this impacting on car sales and no doubt this has also been a factor in the UK’s strong period of retail sales growth. But here the boom theme starts to fade away as we note that by the end of the quarter monthly growth had gone negative and annual growth had slowed to 2.7%.

Business lending not so good

The Funding for Lending Scheme was supposed to be for lending to small and medium-sized businesses. But as I have explained so many times that was something of a red herring to allow them to push hard for more mortgage lending. They do not put it like that but even the BBA is in agreement.

This may be because lending to the private sector overall, including businesses, is less buoyant

This reminds us of an area which is much less buoyant itself to coin a phrase.

Total production output is estimated to have decreased by 0.5% in February 2016 compared with the same month a year ago, the largest fall since August 2013. The largest contribution to the fall came from manufacturing, which decreased by 1.8%.

We are not up to the end of the quarter with the numbers ( and perhaps GDP should wait for a fuller data set) but you can see that the “rebalancing” promised by Baron King of Lothbury and indeed the “march of the makers” by Chancellor Osborne seem to have gone missing.


This is a very troubled data series and should be taken with a lot more than the proverbial pinch of salt. But it too hints at a slowing.

In February 2016, output in the construction industry was estimated to have decreased by 0.3% compared with January 2016…..Compared with February 2015, output in the construction industry increased by 0.3%. All new work was flat while there was an increase of 0.8% in repair and maintenance.

I think that the position is better than that although I may be suffering from local bias as there are plenty of cranes for me to count as I cycle past Nine Elms.

The banks

You might think that with all the help they have received then bank profits would be surging and helping the recovery. But apparently not seems to be on repeat.

Barclays has reported a 25% drop in profits for the first quarter of the year, mainly due to a weak performance in its investment banking division.

Pre-tax profit for the first three months of the year was £793m, down from £1.1bn for the same period last year.

Although I am reliably informed that if you take out all the losses then the numbers are superb! Speaking of spinning, the BBC and GDP I am troubled by this from its economics editor.

It is likely – in fact probable I would say after speaking to those close to Mr Osborne – that the Chancellor will claim “referendum uncertainty” as one of the reasons for the stuttering economy.

You see this was published in the 24 hour purdah period when those who are close to the Chancellor may well be aware of the numbers as he certainly will have known them.


In the end it all comes down to what in gang terms is the Master G of UK GDP numbers these days. The official weights remain back in 2012 at 78.6% for this sector but it must be much more like 80% now. Anyway this morning’s update gives signs of a slowing here too.

The Index of Services is estimated to have increased by 2.5% in February 2016 compared with February 2015……The latest Index of Services estimates show that output increased by 0.1% between January 2016 and February 2016. This follows growth of 0.1% between December 2015 and January 2016, which is revised down 0.1 percentage points from the previous estimate.

If we continue at around 0.1% a month then the annual growth rate will halve. Also business services and finance only rose by 2% in the year to February but of course the latest mortgage numbers are not in there yet.

The Overall Numbers

Change in gross domestic product (GDP) is the main indicator of economic growth. GDP is estimated to have increased by 0.4% in Quarter 1 (Jan to Mar) 2016 compared with growth of 0.6% in Quarter 4 (Oct to Dec) 2015.

In annual terms this translates to.

GDP was 2.1% higher in Quarter 1 (Jan to Mar) 2016 compared with the same quarter a year ago.


It is good news that our economy continues to grow and in annual terms our performance will be solid relative to Europe. However the ying to that yang is of course the fear that the slowing of the growth will continue. Care is needed as the numbers are not in themselves accurate enough for us to be absolutely sure but of course other numbers have been consistent with a slower beating of the economic drums.

Also if we ignore the official hype then the “march of the services” goes on.

Services increased by 0.6%, contributing 0.50 percentage points to Quarter 1 (Jan to Mar) 2016 GDP growth

Yes you do read that correctly and yes other sectors did in fact shrink.

There was a downward contribution (0.05 percentage points) from the production industries; (mostly mining and quarrying but manufacturing fell 0.4% as well)……There was a downward contribution (0.05 percentage points) from construction;

Make what you will of the construction numbers as it is very unlikely that they are correct but you never know and indeed the ONS doesn’t either!

All of my past critiques of the use of GDP numbers apply here so as ever caution is the watchword and here is another thought. How do we define services? Has the definition somehow spread? I am reminded of the large exchange between it and construction around a year ago which of course was a much bigger deal for construction due to their relative sizes.




12 thoughts on “UK GDP is an example of the march of the services and not makers

  1. Shaun, great stuff as usual.
    Picking up a few phrases from above:
    1. remortgaging up 25%
    2. house price increases of 7.2%
    3. consumers are taking advantage of low interest rates and building their net borrowing
    What could go wrong?

    ps what a great phrase, by the way, “building” borrowing as though it is some kind of asset…

    • Hi James and thank you

      Actually these days the language of more than a few economists has changed to have loans as assets. Of course they are for the bank but the usage has gone much wider. What was that about Orwellian language being used again?

  2. “It is good news that our economy continues to grow…”

    Is it? Sure the “economy” is growing but at what cost? The ever dwindling number of tax payers are still paying for the last lending glut yet it seems that the only thing growing at the moment is… lending.

    No I dont think growth in these terms is good news at all.

      • and income tax is only 17/17.5% of revenues to HMG

        4.8 % of revenues then


        Ps if you know what they add in VAT etc

        And also what they have HIDDEN in ofshore havens

  3. “It is good news that our economy continues to grow ….”

    well if you believe the Gerry Mandered figures that is .

    Given GDP has been so corrupted by “imputed” ( ie guessed at ) figures , yet alone “personal services ” and “drugs” , what can we believe ?

    Cranes again ?

    I guess so, and tax revenues , VAT should be a good pointer . But the cost? on debt , not earnings . We keep pushing on that twig and eventually it will break – a “surprise ” to all MSM & pollies everywhere .

    Regards to services , then the government really should be interested in only those that bring revenues in , because that is what it pays for our services ( along with paper debt when it cannot get enough – ever since WW2 ! ) .

    Income tax and VAT do show good increases from last year , corp tax is up despite the drop in actual rates but not back 2008 levels yet ,

    so we shall see , as employment seems to be increasing now


  4. Great article as always Shaun.

    The same is the case for overdrafts and personal loans.

    Thats a spurious claim from the BBA. The loans I hear on the radio are one where you put your parents house up as collateral and they then charge you 49% APR.

    • Hi Anteos and thanks

      You are right about those loans which I have also heard and contrary to the name seem on the road to usury. I had meant to mention them before. For those who have not here is the online version from Amigo.

      “Borrow up to £7500 within 24 hours
      Borrow with a guarantor, no credit scores
      Representative Example: Borrowing £4000 over 36 months, repaying £195.16 per month, total repayable £7,025.76. Interest rate 49.9% (variable).”

      It seems very steep to me when there is a guarantor of the loan

  5. Borrowing Up,House Prices Up “Call me Dave” will be delighted he will claim it shows confidence in our strong economy.
    The solution to a debt crisis……more more more debt?.You couldn’t make it up.
    When the economic meltdown occurs they will utter the immortal phrase “no one saw it coming just like 1929 1987 2008.
    These people have normalised economic stupidity when the debt bubble bursts they can sing along to
    REM ….It’s The End Of The World As We Know It.

    • ah but when you’re a Bank and you know the MPs are looking for cushy jobs …….

      results are Banks love debt – they earn from it – and so long as the government takes care of the “mistakes ” (!) then let to good times roll!


      Governance of the People by the Banks for the Banks

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