A topic which has been in the news in recent months has been the UK trade position as media concerns about it have risen since the vote to leave the EU. Of course this has in reality been a long running problem which has lasted for decades now and has been a concern of mine for some time. I still remember the release of the UK trade statistics being a “stand by your desks moment” back in my earlier days in the City of London. Now they often pass by without much of a by your leave, until recently anyway.
However a cautionary note is provided by the fact that the numbers are so inaccurate that the issue may be very different in terms of scale than what we are told. For example it was discovered a decade or two later that one of the great British economic events of last century the 1967 devaluation which led to the famous Harold Wilson “the pound in your pocket” speech was in fact unnecessary meaning he needn’t have told such a fib. Sadly an event this week has confirmed that by theme is still alive and kicking.
A processing error has been identified in the exports and imports within the “erratics” series (which includes non-monetary gold, silver, precious stones, aircraft and ships) of UK Trade, affecting the period January 2015 to September 2016.
Regular readers may recall I pointed out some time ago that there had been ch-ch-changes here and that they were somewhat confusing. Well rather like the imputed rents series it appears that the official statisticians were confused too!
The error does not affect any series before January 2015,
What is the impact of this?
We are in effect told there is nothing to see here so move along now please.
There is no impact on total GDP, as the corrections to components of trade and the acquisitions less disposals of valuables offset each other.
Yet there are issues.
The correction of the erratics series will also affect the quarterly Balance of Payments from Quarter 1 (Jan to Mar) 2015 to Quarter 2 (Apr to June) 2016, and it will change some expenditure components of the Quarterly National Accounts for the same period…….However, the composition of the expenditure estimate of GDP will change from what was published in the second estimate of GDP Quarter 3 (July to Sept) 2016.
Let me spell out the impact and let me start with the good news which is that in 2015 our trade in goods only improved by £6.7 billion meaning that deficit fell to £31.9 billion. This also improved the current account deficit meaning that it fell from 5.4% of GDP to 5%. There was also better news for the first half of 2016 to the sum of £3.3 billion. It all went wrong in the third quarter which I will cover below.
Let us move on suitably chastened in two respects. Firstly we have yet another reminder of the fragility of the trade numbers which of course also impacts on the GDP (Gross Domestic Product) series. Also we see that yet another “improvement” from our statisticians has gone wrong and the list of these is now at a level we need a proper enquiry. Please do not misunderstand me I am sure that the equivalent of the “poor bloody infantry” are working diligently it is the direction from the officer class that needs reform and change.
The October numbers were good or perhaps I should say better.
The UK’s deficit on trade in goods and services was estimated to have been £2.0 billion in October 2016, a narrowing of £3.8 billion from September 2016. Exports increased by £2.0 billion and imports decreased by £1.8 billion.
I switched to better simply because it is yet another deficit in a long-running series. The detail on the goods exports numbers is below, there was also an improvement in services exports but as that monthly series has no detail as it is in large part a guess I cannot help there.
Exports of machinery and transport equipment, and unspecified goods increased by £0.6 billion each, with material manufactures and chemicals increasing by £0.3 billion each.
For the reason explained above the quarterly numbers were not so good.
Between the 3 months to July 2016 and the 3 months to October 2016, the total trade deficit for goods and services widened by £4.7 billion to £13.2 billion.
Let us look at the specific impact of the error.
The widening of the deficit in Quarter 3 (July to Sept) 2016 is largely driven by a widening of the deficit for trade in erratics by £5.4 billion.
So the upwards revision affects the first two months of the latest measured quarter.
What about the third quarter?
The impact is shown below.
The total trade deficit for goods and services for Quarter 3 (July to Sept) 2016 is now estimated at £14.9 billion (last wider in Quarter 4 (Oct to Dec) 2013). This represents a widening of £6.7 billion from Quarter 2 (Apr to June) 2016. The deficit in Quarter 3 2016 was previously reported to narrow by £1.7 billion.
Up is the new down yet again.
Actually there is quite a change here as you see the GDP report for that quarter reported that better UK trade boosted it! Now we find that some of that has apparently faded away. Let us remind ourselves of it.
For Quarter 3 2016, the largest positive contribution to GDP came from net trade, which contributed a positive 0.7 percentage points.
But anyway don’t worry as it all offsets.
Although it will change the expenditure components of GDP for the same period there is no impact on headline GDP as the affected elements of trade will be offset in the acquisitions less disposals of valuables component.
This reminds me of the often dizzying changes in the Imputed Rent series involving in recent years higher numbers then after a suitable delay large changes to the deflator series, in fact so large they questioned the whole series in my opinion, but guess what? They came to exactly the same answer! As the group Pilot told us back in the 1970s.
Ho, ho, ho
It’s magic, you know
Never believe it’s not so
It’s magic, you know
Never believe, it’s not so
Regular readers will be aware that I have described the official numbers for this sector as the worst in terms of quality the UK economics sector has. Sadly I note there is increasing competition for it. But it continues to have issues.
There was an upwards revision of 0.3 percentage points to construction output in Quarter 3 (July to Sept) 2016 to a fall of 0.8%, this has no impact on GDP to 1 decimal place.
Actually that is one of its better efforts.
I do sometimes wonder if we were thrown an enormous curve ball baseball style with the whole concept of GDP. As we come to measure it we find that it has as many holes as a Swiss cheese. This week’s changes to the UK trade series have simply reinforced that view and the construction series seldom fails to disappoint. It makes the analysis down to 0.1% look ever more ridiculous and is especially disappointing in an era not only of information technology but also of so-called Big Data. We should be doing so much better.
Meanwhile on a lighter note the ECB is doing a Q&A session on Twitter. Have I got this right?
Did we pick enough spinners for the latest Test Match?
But I cannot beat this for humour. Is this called following the Nigel Farage model?
*ITALY PRESIDENT MAY ASK RENZI TO LEAD NEW GOVT: REPUBBLICA (h/t @lemasabachthani )