Today gives us more information on two of the current problems facing the UK economy. The more recent is the apparent slow down going on where quarterly economic growth has dipped from around 0.7% to 0.4% and according to the latest business surveys perhaps now also done this.
The data so far indicate that the second quarter is likely to see the economy grow by just 0.2%.
We find out more on that front this afternoon when the NIESR publishes its latest monthly GDP (Gross Domestic Product) update. The associated issue which became a theme on here around 18 months or so ago was the apparent decline of UK manufacturing which has helped push overall industrial production lower with it.
Today is also a type of central banking day as the ECB continues the expansion of its policies by starting purchases of corporate bonds by buying some issued by utilities. So let us jump into the TARDIS of Doctor Who and go back to April 2002 when Bank of England Governor now Baron King of Lothbury told us this.
How will this re-balancing of demand come about?
Ah yes the rebalancing towards manufacturing which required in his opinion a lower exchange-rate.
but the relative strength of sterling and the dollar against the euro has been surprising. Over the past five years or so, sterling has risen by almost 40% against the euro.
Let us now leap forwards to January 2013 when Governor King was well past the period that this below should have brought the benefits he promised.
The fall in our own exchange rate, of some 25% between late 2007 and the beginning of 2009, has reduced the gap between our exports and imports in real terms from around 3 ½% of GDP to around 1 ½%.
Poor old Merv! The idea now after ever higher current account deficits that it had rebalanced is laughable but he hammered it home.
But the persistence of the current account deficit is evidence that an adjustment of sterling of that order was certainly necessary for a full rebalancing of our economy.
Except of course we never really rebalanced and in fact we have moved in the opposite direction as the service sector has continued to growth and manufacturing has not only declined in relative terms we have seen contractions in absolute terms as well. Oh and just continuing a bit of a European theme Baron King seemed to enjoy blaming the Euro.
And the third is the crisis in our main trading partner – the euro area – where the near term outlook is weak,
Actually I have just checked that he had got the fall against the Euro he wanted but still did not like it!
As I am often critical of Baron King let him have a moment in the British sun. From this morning.
Total production output is estimated to have increased by 1.6% in April 2016 compared with April 2015. There were increases in all 4 main sectors, with the largest contribution coming from manufacturing (the largest component of production), which increased by 0.8%.
That is very different to what we have been getting so what drove it?
Total production output is estimated to have increased by 2.0% in April 2016 compared with March 2016. There were increases in 3 of the 4 main sectors, with the largest contribution coming from manufacturing, which increased by 2.3%, the largest rise since July 2012.
Let us break out an old familiar TV theme song.
Tuesday, Wednesday, Happy Days,…….
Goodbye grey sky, hello blue,
Sadly like the UK weather even a sunny day has its thunderstorms which start well.
The largest contribution to the increase in manufacturing came from the manufacture of basic pharmaceutical products & pharmaceutical preparations, which increased by 12.5%, the largest rise since April 2009.
That is what you call a surge and it was driven by monthly production rising by 8.6%. This meant that industrial production was 0.7% higher than a year ago due to this alone. Even better for the rebalancing theme it was driven by this.
Anecdotal evidence suggested increased exports were the main contributing factor to the rise.
As it was an extraordinary change I rang the Office for National Statistics to check and they replied that they had double-checked the numbers. They agreed with my view that this was an erratic series which does not fit months well and said that they had similar issues with February. So whilst there was a surge in April it may raise fears for May for a side-effect of the drugs boom should we go cold turkey after the party. Thank you to the ONS for providing a helpful service.
A more solid foundation
This was provided by a sector which has been in a good run.
231,628 engines produced in April, up 14.6% on the same period last year…….
Total engine output up 6.2% for the year to date, to 899,516 units.
Those numbers are from the SMMT ( Society of Motor Manufacturers and Traders) and they provide the basis for the fact that it was car production which drove the category Transport Equipment higher. The official data does not break this down but the ONS did confirm over the phone that this was the driver of a 0.7% increase in total UK production over the past year.
A sadder perspective
The thunderstorms appear again as we not how little growth there has been since 2012. Overall production has risen by 3.2% which one might try to excuse saying that oil and gas output will be affecting it. However then we have the problem that manufacturing has in spite of today’s numbers only risen by 2.7% since then. Remember this has been a boom for the UK economy overall.
If we look back further maybe we get some of the flash flooding which hit South East London yesterday.
In the 3 months to April 2016, production and manufacturing were 9.4% and 6.4% respectively below their level reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008.
Wasn’t it the banking sector that was supposed to have been pummeled by the credit crunch. Where has the QE for manufacturing been?
It is nice to be able to review some better numbers and have a wry smile as the NIESR recalculates its GDP numbers ( in a good way) for later. However whilst we have had a flicker of life I am reminded of what happened in Ireland a while back when the pharmaceutical industry had a big monthly move. Take a look at this.
The UK Manufacturing PMI fell below its critical 50.0 mark for the first time in over three years in April, ( Markit Economics)
They in essence have a tick sheet which misses large individual moves. But sadly whilst we have seen a good month the pattern remains mostly the same. Nice while it last though. But we have seen this develop.
The same trend was observed in manufacturing, where the share of nominal GVA fell from 18.4% in 1997 to 10.6% in 2014………..The slower output growth and increased productivity, therefore, reflect the falling share of the labour force employed in manufacturing, which fell from 16.5% to 9.6% between 1997 and 2015.
I wonder if some of this is due to reclassification of output on the UK and emailed the ONS last month to find out more. Sadly their services section have failed to reply.
Meanwhile it was not a good day for the UK’s “Top Economists” who found that 2% is the new 0%. Odd that apparently they can see so far into out future…….