Does industrial disease matter in a modern economy?

Today sees some important data for the UK but before that we get some numbers which will be the priority of the Bank of England. This matters as several members of the Monetary Policy Committee will be speaking to Parliament this afternoon. They will already be unsettled by the recent positive data and also the rally in the UK Pound to above US $1.34 and may be shaken by this from the Halifax.

House prices declined by 0.2% between July and August.

They may fear that another 17.8% fall is on the immediate horizon to fulfil the pre Brexit referendum forecast of former Chancellor George Osborne and thereby conclude that a sledgehammer squared is now required. if so they may ignore this.

This modest decrease was the smallest of the four monthly falls so far this year. The quarter on quarter change is a more reliable indicator of the underlying trend.

Okay and the quarterly picture is.

House prices in the three months to August were 0.7% higher than in the previous three months (March-May)

So still some growth here albeit slower than before which is no great surprise as we saw buy to let activity pushed earlier in the year because of the April Stamp Duty changes. Indeed the annual picture shows house price rising at around treble the rate of wage growth.

Prices in the three months to August were 6.9% higher than in the same three months a year earlier. This was down from 8.4% in July, continuing the downward trend since March when the annual rate reached 10.0%. August’s 6.9% is the lowest yearly growth rate since October 2013 (6.9%).

So if we stop and take stock we see that the main player so far this year for house price growth was in fact the Stamp Duty change. Also we see that house prices have in this latest house price boom moved from around 4.5 times earning to more like 5.5 times in response to the Bank of England Funding for Lending Scheme according to the Halifax. Meanwhile if we use the monthly average earnings series we see that it has the average wage at £26,000 meaning that the standardised average price of £213,930 is some 8.2 times it.


Today’s numbers which represent output in July are in the phase where the Markit business survey told us that the leave referendum result had a bad effect.

the 41-month low of 48.3 posted in July following the EU referendum.

It will be interesting to see how this is reflected in the official figures as they do not always coincide by any means. However I wish to look at a more fundamental level as I think that manufacturing is important and therefore disagree with the thoughts of John Kay of the Financial Times.

Manufacturing fetishism – the idea that manufacturing is the central economic activity and everything else is somehow subordinate – is deeply ingrained in human thinking……….From these primitive times, we have inherited the notion of a hierarchy of needs in which food and shelter rank ahead of chartered accountancy and cosmetic surgery.  Along with the hierarchy of household needs comes a perception of a hierarchy of importance for productive activities – agriculture, primary resources and basic manufacturing rank ahead of hairdressing and television programming.

With respect to chartered accountants and cosmetic surgeons I do think that food and shelter are more important than them. John has plainly missed a career as a central banker when he would be vulnerable to his own ” I cannot eat an I-Pad” moment.

These days if we look at the financial sector the statement below changes in tone and emphasis.

As economies passed beyond the basic and all-consuming requests for food, fuel and shelter, rewards became divorced from the place activities enjoyed in the hierarchy of needs.

Many would regard that as a problem as is the issue he champions below.

Those who are lucky enough to have possess these rare talents or occupy positions of authority have often felt embarrassed by earning more than those who work to satisfy more basic elements in the hierarchy of needs.

If you find someone like that please let me know as they are a rare beast indeed! Today’s news on the Southern Health scandal reminds us that those who occupy positions of authority seem to have missed the embarrassment gene.

Where John is on better ground is that “industrial strategies” by different governments often try to occupy the same piece of ground which is why there is so much overproduction of steel. Food for thought as the UK apparently heads for its own industrial strategy.

The Credit Crunch

Even before the credit crunch the UK was seeing a decline in both production and manufacturing.

In 1997, the share of nominal GVA accounted for by production in the UK was 21.7%, around the middle of the range relative to the other economies. By 2014, the UK had become relatively less reliant on production, as its share fell to 14.2% of nominal GVA………..The same trend was observed in manufacturing, where the share of nominal GVA fell from 17.1% in 1997 to 10.2% in 2014.

The credit crunch made this worse.

In the 3 months to July 2016, production and manufacturing were 7.6% and 5.2% respectively below their level reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008.

Today’s numbers

These were good in the circumstances for production.

0.1% increase in total production in July, driven by growth in mining & quarrying (+4.7%)…..In July 2016, total production output was estimated to have increased by 2.1% compared with July 2015.

However the Markit business survey has had something of a victory with the manufacturing numbers.

0.9% fall in manufacturing in July…..Manufacturing was estimated to have increased by 0.8% over the same period ( a year)

The fall was driven by a sector which has been erratic so far in 2016 as regular readers will recall.

with the largest contribution (to the fall) from pharmaceuticals

Output in that sector fell by 5.6% on the month and continues a pattern which is almost impossible to discern. On a more positive side was the motor industry.

The largest contribution within this sub-sector came from the manufacture of motor vehicles, trailers & semi-trailers, which increased by 9.0% and contributed 0.5 percentage points to total production. This was the fifth consecutive increase on a year ago.


We find that one more time the media pack are clustered around something of minor importance and missing a much larger issue. What I mean is the impact of the leave vote on manufacturing when in fact if the Markit business survey continues to be on form then it did not change things much if at all. Going forwards we will see a more complex picture as the initial price competitiveness ch-ch-changes meet higher costs.

In July 2016 the manufacturing industry experienced inflation in terms of the prices manufacturers pay for materials and fuels used in the production process (input prices) and the prices they charge for the goods they produce (output prices).

Meanwhile the whole manufacturing and production issue is a long-term one of decline. Some of it we cannot help unless we wish to drive wages to well below the UK minimum wage. Therefore we need a strategy for higher value products in my opinion and one bit is easy and the other is hard. With the current level of cheap borrowing costs for the government we are in a really bad state if we cannot find projects to encourage. But the truth is that longer-term growth relies much more on issues like education and creating a positive environment for innovation and invention than the fantasies and fads of politicians.

Meanwhile it was hard not to have a wry smile at this released with Germanic efficiency earlier today. Imagine if we had released this.

In July 2016,production in industry was down by 1.5% from the previous month on a price, seasonally and working day adjusted basis according to provisional data of the Federal Statistical Office (Destatis)…….. Within industry, the production of capital goods decreased by 3.6% and the production of consumer goods by 2.6%.

If only German had a word to cover this……Still we can provide some musical accompaniment.

The work force is disgusted downs tools and walks
Innocence is injured experience just talks
Everyone seeks damages and everyone agrees
That these are ‘classic symptoms of a monetary squeeze’
On ITV and BBC they talk about the curse
Philosophy is useless theology is worse
History boils over there’s an economics freeze
Sociologists invent words that mean ‘Industrial Disease’




15 thoughts on “Does industrial disease matter in a modern economy?

  1. In lofty towers all the talk is BtL/QE.
    More money for the rich and sod the common man like.
    “Consumer” in the CPI, it doesn’t mean I eat;
    It doesn’t cover housing & it doesn’t cover heat.
    My savings earn me nothing, since the interest rates went down.
    I’m sick of the crap spouted by the Canadian clown.
    Put all of this together and perhaps at last you’ll see,
    Why I never give a fig about UK’s economy

    • Hi am

      No as it is a relatively small part of the economy now ( between 9.6% and 10.2% depending whether you use employment or output) . Also the NIESR which has been in good form recently told us this later in the day.

      “Our monthly estimates of GDP suggest that output grew by 0.3 per cent in the three months ending in August 2016 after growth of 0.4 per cent in the three months ending in July 2016”

  2. Shaun,
    Any UK world-class business (e.g. ARM) likely to be a M&A target with current £ devaluation unless worry over Brexit deters would be buyers.
    I think the race is on for the EZ to hold together before Brexit is complete.

    • Hi Chris

      There must also be foreign property buyers in Central London with price drops being added to currency gains for foreign buyers. I guess they will be grateful for the way that Bank of England Governor Mark Carney again talked down the UK Pound this afternoon.

  3. They want to have a war to keep their factories
    They want to have a war to keep us on our knees
    They want to have a war to stop us buying Japanese
    They want to have a war to stop industrial disease
    They’re pointing out the eneny to keep you deaf and blind
    They want to sap your energy incarcerate your mind
    They give you rule Brittania gassy beer page 3
    Two weeks in Espania and Sunday striptease.

    Brilliantly insightful…..bread and circuses…there is nothing new under the sun

    • Hi PrivateFraser

      The issues raised in your ditty did come up this afternoon at the Treasury Select Committee.

      “Committee member Helen Goodman: QE’s impact on asset prices good for the top 5% while poorest see no gain.”

      “Steve Baker asks: does MPC member Gertjan Vlieghe agree with @Number10gov that monetary policy has disproportionately benefited homeowners?”

  4. Well Shaun, I am disgusted. At 5% of GDP we may as well give-up, you can’t come back from that. We now the land of Tattoo and Nail Bar, neither industries adding much value or paying hgh wages, instead causinglikley long term health problems for which the stricken have no savings.

    I am intrigued by T.May’s industrial disease strategy and indeed Brexit detail since time flies and there’s nothing much else for us other than lower rates and higher property prices…. Just what will Britain become?

  5. Great blog as always, Shaun.

    Regarding UK housing statistics, you may have noticed that the UK OOHPI (as Eurostat calls it) or the OOH(NA) price index (as the Office of National Statistics calls it), showing a consumer price series for owner-occupied housing based on a net acquisitions approach, was not released on September 7, as scheduled. I contacted the ONS about this and was informed that the new release date will be September 23. I may be wrong, but I would guess that there is no reason the ONS could not produce a monthly OOHPI that could be released on the same date as the CPI, RPI and other releases. The only difference would be a slight decline in quality because they would be forced to use a lagged house price index, as the RPI already does. And they could release a composite index of the CPI and the OOHPI series, sort of a true CPIH! The ONS really should be encouraged to do this.

  6. Shaun, thanks for telling us about the BoE people giving testimony before the UK Treasury Select Committee. The excitement was mostly front-end-loaded, as it got pretty boring after Brexiter Jacob Rees-Mogg’s interrogation. Carney seemed to be unnerved, as well he should have been, while it was going on. I have never heard any central banker say “monetary policy” so often, and so redundantly, in the course of a few minutes. I think even Remainers should be concerned that the BoE Governor engaged in such blatant scaremongering before the Brexit referendum. Carney claimed that the BoE really would have had to tighten rather than loosen monetary policy after the Brexit vote if the decline in sterling had been such that only a bank rate hike could stem its fall. Given the steep decline that did occur, this was hardly credible. Presumably an even steeper fall could have occurred and the Bank would, by the same logic, have kept the bank rate on hold. Just how steep an increase in the bank rate did he think was plausible, under the circumstances?
    Also, why did he almost instantly go into monetary-policy-loosening mood after the Brexit vote if he had dark fears about the pound falling with no floor beneath it? Logically you would think he would want to wait to see if there was another unpleasant follow-up event around the corner from some quarter that would send the pound even lower into whatever undefined range he thought that a reduction in the bank rate would be inappropriate, or a bank rate hike would be appropriate.
    It was not true, as Carney said that, Gerard Bouey spent most of his time as Governor targeting monetary aggregates, implying that a number of different monetary aggregates were targeted over time, as in the UK under PM Thatcher. Bouey was Governor from 1973 to 1987. Starting on September 2, 1975, when there was a big hike in the bank rate, the Bank of Canada targeted M1, which like its UK counterpart, is a narrowly defined monetary aggregate. No other monetary aggregate was targeted until 1982, when, as Governor Bouey said a year later: “We did not abandon M1, M1 abandoned us”. (Carney sure knows how to wreck a great quote!) So, it would have been more accurate for Carney to say that Bouey spent about half of his time as Governor targeting M1, a narrow monetary aggregate. This is all well described in Chuck Freedman’s excellent memoir:
    I noticed that the smartest North American on the MPC wrote in her report to the TSC: “After sterling’s 2007-2009 depreciation, the BoE estimated that a 10% depreciation would increase import prices by around 9% and consumer prices by 2.7%. More recent evidence suggests the average effect of a 10% depreciation is closer to a 6% increase in import prices and 1.8% increase in consumer prices, before taking into account specific factors driving the exchange rate movement. (The effects of an appreciation are symmetric in the opposite direction.)” You have used such rules of thumb in your own blog. What is your opinion of La Forbes’s statement, please?

    • Sorry, the Governor of the Bank of Canada from 1973 to 1987 was Gerald Bouey, not Gerard. I know…those who live in glass houses, and so on…

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